The Ever-Shrinking Bank Dividend

Posted by: Ben Steverman on April 21, 2009

Bank of New York Mellon (BK) slashed its dividend 63% on Apr. 21.

It’s a story financial sector investors have heard before. By now, nearly every major bank has cut its payout to the bone.

But BNY Mellon was seen as one of the strongest regional banks in the U.S. By cutting its dividend, the bank made clear how much it wants to pay back the $3 billion in bailout money provided by the U.S. Treasury’s Troubled Assets Relief Program.

As Robert P. Kelly, chairman and chief executive of the bank, said in a statement:

The decision to reduce the dividend was not made lightly, and reflects our commitment to build capital further, pursue growth opportunities and, with the permission of our regulators, repay the government’s investment in BNY Mellon. We anticipate returning to our historic payout ratio as soon as practical.

BNY Mellon’s quarterly dividend goes from 24 cents per share to 9 cents. Its dividend yield, based on its closing price on Apr. 20, drops from 3.4% to 1.3%.

After news of the dividend cut and some weak quarterly results, shares dropped more than 10% in the morning of Apr. 21. But by afternoon, shares rebounded and closed down just 0.2% at 27.98.

This is not a good time for dividend investors. According to the most recent Standard & Poor’s data, companies in the S&P 500 paid out a dividend yield of 3.13% in the last 12 months. But the indicated dividend yield — the amount companies say they will pay out in the next 12 months — has fallen to 2.52%.

And it could keep falling. Though many financial institutions have already slashed dividends, other sectors could also cut payouts in order to save precious cash.

Luckily for investors, a few companies continue to be generous to shareholders. On Apr. 14, Procter & Gamble (PG) raised its dividend by 10%.

Reader Comments

Squeezebox

April 28, 2009 12:39 PM

Awww the banks want to pay us back. Could it be because they don't want the public criticizing the excessive bonuses they pay???

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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