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Decreasing Expected 2008 S&P 500 Dividend Growth To 4%


Due to the unprecedented dividend decreases in the Financial sector, amounting to $14.5 billion, I are reducing my 2008 dividend payment to $28.85 from $30.30. The 2008 rate represents a 4% gain over the 2007 payment of $27.73, and is the lowest since the 2.1% gain of 2002.

By the numbers we should be past the aggregate dollar value of dividend cuts, but with the number of dividend increases slowing, it will take years to gain back what has been lost -> the determining factor will be how long it takes the Financials to get back to profitability.

Outside the index (ASE, NYSE, NNM, NSC, NGN, common, no funds), dividend cuts are increasing fast (Q2 was the worst quarter in 18 years; Month-to-date 23 decreases vs. 5 for all of July 2007), with Financials leading the way down. I expect dividend payments to be reduced as the problems filter down to the lower-cap issues.

Currently,

20 dividend decreases vs. 12 for all of 2003-2007, and 5 of those were in Q4 2007

Financials still contribute the lion’s share of dividends, 25.5% down from 34.5%

Increases continue, but at a slower rate

Cash for non-Financials remain high ($620B), with Q2 EPS coming in (48.4% reported) at +14.0% (expected to decline to +10.1%), and buybacks continuing at a rapid, but not record, pace

Top 25 payers by dollars account for 50% of the dividends -> with the exception of C they have decent 2008 and 2009 coverage (estimated earnings over dividends), but estimates are generally based on an improving economy, end of the credit problems, and a housing bottom in Q4/Q1,’09

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