Transcripts

Dividend Cutting Strategies Make A Comeback

SUSIE GHARIB: The nation's biggest banks and several blue chip companies have started a new, but unpopular trend: cutting their dividends. Since September, some of the largest U.S. firms have slashed their dividends by more than $60 billion. Now historically, dividend paying stocks have been a safe haven for investors during bear markets. But as Suzanne Pratt reports, many people are now re-evaluating that investment strategy.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Electric is doing it. JPMorgan Chase is doing it and so too is Dow Chemical. Some of the biggest names in corporate America have recently slashed or even eliminated their dividends. Standard & Poor's analyst Howard Silverblatt says the cuts are unprecedented.

HOWARD SILVERBLATT, SR. INDEX ANALYST, STANDARD & POOR'S: We've never seen anything like this. Dividends are now an endangered species. There are a lot of companies still paying, but it's very hard to find the secure ones.

PRATT: So far this year, 41 S&P 500 companies have already trimmed their dividends by over $40 billion. That amount already exceeds last year's activity. For investors, many of whom are retirees, smaller dividend checks couldn't come at a worse time. But, with big business trying to take cover from the recession, the reason for the cuts is straight forward. Companies are looking to preserve money for now and perhaps the future.

SILVERBLATT: It's the year of the cash flow. Companies are very concerned about how much cash they have on hand and that they don't go and borrow. So, they're looking to cut and dividends now are OK to cut; it's acceptable. Your stock may actually go up.

PRATT: The recent cuts have caused many people to question dividend investing. Some experts say in the current environment, the highest yielding stocks are a potential minefield as those dividends are at risk. Still, UBS market strategist Mike Ryan says buying stocks today for yield is a great idea as long as investors do their homework and search out healthy companies in a range of industries.

MIKE RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: What we want to emphasize now is an environment where you have more volatility, where the market is certainly less secure in terms of its capital gain opportunities. Those companies that have the ability to not only sustain but grow dividends are actually where you want to be focusing right now.

PRATT: Experts predict companies will continue to slash dividends in the coming months. And even when the economy ultimately rebounds, they expect the firms will take their time in restoring quarterly payments. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.