But by the end of the month, Immelt’s resolve had collapsed under the weight of the global financial crisis and his company announced its first dividend cut since the Great Depression. GE slashed its payout by more than two-thirds, from 31 cents to 10 cents per share.

GE is not alone. Companies typically abhor dividend cuts, as they are widely viewed as a sign of desperation. But lean times – like those we’ve experienced in the past year and a half – have left even the proudest U.S. firms with little recourse.

By cutting its dividend, GE will save about $9 billion a year.

The 117-year old American icon was joined by a record number of companies that issued dividend cuts in the first quarter of 2009. Companies slashed a total $77 billion from investor payouts in the three months ended March 31. For the first time since 1955, dividend cutbacks actually outweighed dividend increases.

“While the number of dividend decreases is at a record high, the number of increases has set a new record low,” said Standard & Poor’s Chief Index Analyst Howard Silverblatt.  “The average has been for every 15 increases there is one decrease.  Now it is three increases for every four decreases.”

The long list of businesses that have cut their dividends reads like a “Who’s Who” of Corporate America.  Bank of America Corp. (NYSE: BAC), Citigroup (NYSE: C), Motorola Inc. (NYSE: MOT), CBS Corp. (NYSE: CBS), and Pfizer Inc. (NYSE: PFE) were among the victims.

Now that even America’s proudest, most-reliable labels have reduced their payouts, it’s hard to tell exactly which companies will be the next to cut their dividends. But here are some simple rules to follow when looking for a safe place to invest your money for long-term dividend growth.

Three Rules for Dividend Investing

Dividends remain a critical element of investing success, Money Morning Investment Director Keith Fitz-Gerald has repeatedly said. That’s especially true in the uncertain, whipsaw market conditions that have dominated since last fall.

According to Fitz-Gerald, one study by Ned Davis Research is particularly telling, noting that dividend-paying stocks provided returns of more than 10% a year from 1972 to 2005. Non-dividend paying stocks, in contrast, posted gains of just 4.1%.

Other experts say there are three rules to follow in order to identify companies whose dividend payouts are likely to remain in place – or even grow.

1. History Repeats Itself: Look for companies that have a history of raising their dividend.  For some organizations, dividend growth is a top priority and their track record will show that.  Although GE is clearly an exception, if a company has consistently raised its dividend for decades at a time, it will likely continue to do so.
2. Earnings vs. Payout: Research is key when investing in any stock. When looking at companies that offer a dividend, a good question to ask is: “What does the company pay per share versus its assets and earnings?”  Dividend payouts cannot grow if a company’s earnings do not grow, so check a company’s earnings history.
3. Black-and-Blue Stocks: Avoid stocks whose earnings have been hammered. While in today’s market most stocks are beaten down, stocks valued below $10 a share are generally there for a reason.

Three Companies That Are Unlikely to Cut Their Dividend

NYSE Euronext (NYSE: NYX): NYSE Euronext is a diverse exchange group that offers a 4.69% dividend yield, making it an extremely attractive investment opportunity. While the company was hit hard during the beginning of the recession (trading at over $100 a share to a meager $25.59 as of yesterday’s close), it still shows strength for long-term investment.

“The dividend is intact for 2009 and we have no plans to change it,” NYSE Euronext Chief Executive Officer Duncan Niedereaur said during a recent appearance on the 1,000th episode of CNBC’s “Mad Money.”

NYSE Euronext completed its takeover of the American Stock Exchange (AMEX) in October.  And the company has seen a tremendous improvement in its overall trading activity over the past month. Its cash equity business is up 11% on a month-over-month basis, and its U.S. consolidated equity volumes were close to record levels at 12.3 billion shares.  That’s a 48% increase from last year, and a 12% jump from February.

Additionally, the U.S. Securities and Exchange Commission (SEC) recently had a hearing and ruled unanimously in favor of reinstating five rules against short selling following the guidelines of the former “Uptick Rule.”  This ruling is important to the Big Board’s growth because short sellers helped drive down share prices.

The recession that’s plagued the markets over the past year and a half has severely diminished trading volumes, and therefore the profits of the New York Stock Exchange. The newly established rules on short selling can only make the company stronger.

“We are a three-year-old public company,” CEO Niedereaur said. “Long-term prosperity for this company is based on fairly run markets and the reinstatement of the uptick rule is a major plus for this company.”

Johnson & Johnson (NYSE: JNJ): Johnson & Johnson is a strong company with a solid dividend that yields 3.51%. Its stock remains undervalued, down 23% from its 52-week high of $72.76 a share.

Johnson and Johnson is the quintessential dividend growth stock. Its dividend has grown 14.10% on average every year since 1999.  A growth rate that high means the company’s dividend is doubling about every five years.  This has been the pattern since 1974.

Last year, JNJ’s revenue was $63.7 billion, producing a net profit of $13 billion – an increase of 22% from 2007.

JNJ’s most recent acquisition of Mentor Corp. (NYSE: MNT), a global supplier of medical products for the cosmetic-surgery market, gives JNJ the opportunity to compensate for a decline in its pharmaceutical sector (the unit has cut more than 900 sales jobs and is dealing with drug-approval  issues).

“Mentor will become the cornerstone of a broader Johnson & Johnson strategy for aesthetic medicine – serving both consumers and medical professionals,” Johnson & Johnson Chairman Gary Pruden said in a statement. “We will use our combined strengths and experience to build a market-leading aesthetic business that capitalizes on Johnson & Johnson’s broad-based commercial capabilities, worldwide surgical care footprint, and clinical scientific capabilities.”

The Proctor & Gamble Co. (NYSE: PG): Proctor & Gamble offers a healthy dividend of $1.60 a share, yielding 3.26%. At $54.02, its stock down 26.5% from its 52-week high of $73.57 share.

P&G is another example of a classic dividend growth stock:  It has been raising its dividend for the past 55 years. For 10 consecutive years, P&G has delivered its shareholders an annual average return of 3.10%.  Since 1973, dividend payments have doubled every seven years.

Proctor & Gamble offers branded consumer goods that branch off into three global markets: Beauty, household care, and health and wellness. Many common household items come from this company, such as Gillette Co. shaving products, Tide laundry detergent, Pampers baby diapers and Bounty paper towels, to name a few. During troubled times, a stock such as this is often a nice defensive play, since families are unable to do without these items.

“Today we reach a little more than half of the world’s 6.7 billion consumers,” Proctor & Gamble CEO Alan G. Lafley recently told BusinessWeek. “We want to reach another billion in the next several years, and much of that growth is going to be in the emerging markets, where most babies are being born and where most families are being formed. We see growth across our entire portfolio.”

Since 61% of P&G’s sales come from outside the United States, a weaker dollar is going to be a large factor in this company’s success.  A weaker dollar makes U.S. made exports cheaper for foreign consumers to buy. While the company is timid about its earnings and fears that business conditions may have slowed from last year, the Cincinnati-based company raised its dividend in March.  From an investment-research standpoint, increasing dividends despite expectations of a decreased consumer market is typically a good sign.

Source: Three Dividend Plays That Can Offer Stability in the Face of Uncertain Financial Markets

IBM, otherwise known as “Big Blue,” on Wednesday told Wall Street that it expects to post a better-than-expected adjusted profit of $2.05 a share for the third quarter. That compares with pro forma earnings of $1.68 in the year-ago period and is above the Wall Street consensus forecast of $2.01 a share. Sales for the quarter – which ended last month – were $25.3 billion, up from the $24.1 billion level last year, but below top-line expectations of $26.5 billion.

IBM, the world’s biggest computer-services company, said its service contract business remained solid and reaffirmed its full-year profit goal, Forbes reported.

The announcement was made after regular trading ended Wednesday. The shares were up 5% in after-hours trading.
But some investors remain concerned that the current financial crisis will force businesses buyers to scale back on their purchases of high-tech hardware. Tech-stock mavens of both the bullish and bearish persuasions will tune in next Thursday to see if IBM can fill in the blanks when it releases its full earnings report.

“IBM’s pre-announcement attempts to put out the fire sale,” since Wall Street has taken a highly pessimistic view of the U.S. tech sector, preferring instead to sell now rather than waiting out the credit-crisis storm, said Mark Moskowitz, an analyst who follows the high-tech sector for JPMorgan Chase & Co. (JPM), wrote in a research note yesterday (Thursday).

As one of the key beneficiaries of the so-called “outsourcing” trend in the information-technology-services sector, IBM has been somewhat insulated from the tech-spending swoon. But a new report released Wednesday from Forrester Research Inc. (FORR) suggests that there are more challenging times ahead.

According to Forrester, 43% of the firms it surveyed have already cut IT budgets in anticipation of an economic slowdown, and 70% are looking to spend even less. Recent shakeups in the insurance and financial-services industries are finally prompting potential customers to delay orders – or even to cancel them outright. And now some analysts see signs that the financial-sector-fallout is going to show up in IBM’s results.

Forrester analyst Andrew Bartels predicts that the third-quarter’s banking woes won’t materialize for tech companies until the fourth quarter.

“We’ve been expecting vendors would have a relatively solid third quarter,” he told Forbes. “There’s a lag when economic news hits. At the end of a quarter, companies look at their own earnings and realize they’re going to miss their numbers, and it’s only then that tech spending slows down.”

In a research note yesterday, Sanford Bernstein & Co. LLC analyst Toni Sacconaghi wrote that: “IBM’s revenue shortfall likely came late in the quarter due to increased purchasing hesitancy, and may have been concentrated in consulting and short-term services revenues, particularly in financial services.”

IBM isn’t alone among high-tech firms that have seen their shares tank: Even such highly profitable high-tech giants as Nokia Corp. (ADR: NOK), Dell Inc. (DELL) and Verizon Inc. (VZ) have seen their share prices drop so much that they each are now trading at a Revenue/Price ratio of less than 1.0 – one indicator of a possible bargain-stock play used by value investors.

For example, Nokia’s Wednesday closing price of $16.61 per share is considerably less than its Revenue/Share ratio of $19.19, based on the past 12 months of sales, Fortune reported, giving it a Price/Revenue ratio of 0.87.

Six years ago, Nokia’s Price/Revenue ratio was 2.1.

Nokia’s market value of $61.91 billion is below the cell-phone giant’s yearly revenue of $73.2 billion (creating a Market Value/Revenue ratio of 0.85).

Although a number of tech-sector firms have fallen into this potential bargain-basement realm, Fortune says that these four firms stand out for their “otherwise solid financial positions and leadership in their [respective market] segments,” or sectors.

And this huge “revaluation” has been somewhat indiscriminate. Nokia, for instance, has $10 billion in cash on its balance sheet and generates another $9.3 billion in operating cash flow each year, says CNNMoney.com.

“We are seeing values significantly lower than the last cycle, and the earnings are higher now,” Bay Bridge Capital’s Scot Labin told Fortune. “I don’t think it’s anything specific to these companies … I think it’s hedge funds dumping shares and people going to the sidelines.”

And the tech area isn’t the only market sector to be torpedoed. Media shops like CBS Corp. (CBS) and Time Warner Inc. (TWX) also are valued at less than their yearly sales level. It won’t stay that way forever, Labin says, insisting that reason will eventually return to the market. “Those companies, which stuck with financial discipline and made acquisitions that provided adequate returns on capital, will be significantly rewarded over the next few years,” he said.

Ironically, yesterday marked the six-year anniversary of the Nasdaq Composite Index’s most-recent low, when the tech-laden index fell to 1,114 – as the last bit of helium left the Internet bubble that reached its peak from 1998 to 2000. Even at yesterday’s closing of 1,645.12, after a drop for the day of 5.47%, the Nasdaq still trades well above that 2002 nadir, Fortune reported.

“There are problems out there, I know that, but stocks have completely overshot on the downside and are now discounting some bad economic conditions,” Kevin Rendino, who manages $10 billion at BlackRock Inc. (BLK) in Plainsboro, N.J., told CNNMoney.com. “There are a number of companies that offer unbelievable risk-reward potential.”

Source: Hot Stocks: IBM Bucks the Earnings Trend as Tech-Sector Stocks Trade Down to Bargain Levels

[“Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the inaugural installment of this new investment series.]

• Bristol-Myers Squibb Co. (BMY) yesterday (Thursday) offered $4.5 billion in cash for biotechnology company ImClone Systems Inc. (IMCL), the Associated Press reported. ImClone’s board has yet to comment on the proposal, which offers its stockholders $60 per share, a 30% premium to its Wednesday closing price of $46.44. Bristol-Myers already owns about 17% of ImClone.

• Eastman Kodak Co. (EK) said yesterday (Thursday) that second-quarter profit fell, as traditional film-based revenue slumped 14% to $847 million. Sales climbed 1% from $2.47 billion to $2.49 billion, and revenue from digital businesses rose 10% to $1.64 billion.

• Diana Shipping Inc. (DSX) said yesterday (Thursday) that second-quarter profit more than doubled due to higher charter rates and an increase in operating days, the Associated Press reported. The company said its earnings for the quarter ended June 30 increased to $56.7 million, or 76 cents per share, up from $26 million, or 41 cents per share, for the same period last year.

• Light, sweet crude oil for September delivery fell $2.69 to settle at $124.08 a barrel on the New York Mercantile Exchange yesterday (Thursday). Prices are up 59 percent from a year ago, but have dropped 11% this month on concerns demand in the U.S. is pulling back.

• Google Inc. (GOOG) has plans to start-up a venture capital fund to provide seed money to promising start-ups, MarketWatch reported. Google follows in the footsteps of other tech giants with similar funds such as Intel Corp. (INTC), Cisco Systems Inc. (CSCO) and Microsoft Corp. (MSFT).

• CBS Corp. (CBS) shares slumped 3% after the television network lowered its outlook based on slackening advertising sales, Forbes reported. Advertising sales fell 6% due to fewer primetime viewers and less spending by local stations. CBS reduced its guidance to the nearly flat from a prior estimate of growth of 3% – 5%.

• MasterCard Inc. (MA) fell almost 10% yesterday (Thursday), as investors worried about the effect waning consumer spending would have on debit and credit card use, Bloomberg News reported. MasterCard shares dropped $26.58 to close at $244.15.

• Standard & Poor’s lowered the rating on the three major U.S. automakers yesterday (Thursday), as domestic car companies continue to lose ground to foreign competition. General Motors Corp. (GM), Ford Motor Co. (F) and Chrysler LLC were all lowered to a rating of “B-minus,” six levels below investment grade, Reuters reported.

Source: Global Investing Roundups Friday, August 1st, 2008

The PPI report will undoubtedly rekindle the inflation-versus-recession debate (with more than a few comments about stagflation thrown in for good measure).

While the wholesale inflation gauge (PPI) provides another look into how escalating food and energy prices are impacting the economy, the most recent moves in oil and gas may not be factored in for another month or two.

On an optimistic note, gasoline prices historically peak around Memorial Day and then fall throughout the remainder of the summer. As we’ve said here a number of times before, don’t expect that pattern to repeat itself this year [Indeed, please click here to check out a related story in this issue of Money Morning that details our expectation that oil-and-gasoline prices are headed even higher].

In this column four weeks ago, we told you to ignore a U.S. Energy Department forecast that gasoline prices at the pump would reach $3.73 a gallon before falling. In fact, I said flat out that the Energy Department was wrong. And Money Morning Investment Director Keith Fitz-Gerald shortly thereafter reiterated that belief that the Energy Department’s prediction was way off the beam. And how right we were – that price already has been surpassed and consumers in some parts of California and Hawaii are paying in excess of $4.00 a gallon.

Less than two weeks ago we actually boosted our target price for oil to $225 a barrel (remember that Keith Fitz-Gerald, now Money Morning’s investment director, was probably the first investment guru to predict triple-digit oil prices).

As noted, however, much of this won’t be reflected for a couple of weeks.

Wednesday’s release of the minutes from the last Fed meeting should provide investors with a bit more insight into the mindsets of central bank policymakers and just how likely they will be to stand pat on interest rates: In one of the most aggressive rate-cutting campaigns in the central bank’s history, policymakers have pared the benchmark Federal Funds rate seven times since mid-September. Investors expect the Fed to sit tight (and hold off on further rate activity) at least through the summer months.

More retailers will report this week [Target Corp. (TGT), The Home Depot Inc. (HD) but few surprise are expected at this point in an earnings cycle that – except for the discounters – has been full of disappointing retail-sales reports.

The Money Morning Story SNAFU

When they received their daily e-letter last Monday, sharp-eyed Money Morning readers noticed something peculiar about this column.

It seemed familiar.

There’s a very good reason they felt that way. They were right.

Due to a technical problem, and some human error, the column we’d put together for Monday’s newsletter was inadvertently replaced by the afore-mentioned April 14 story in which we’d told you that the Energy Department’s optimism about summer gasoline prices was wrong.

We replaced that story on the Web site with the correct piece – a warning about the week’s upcoming retail-sales reports, but we heard about the mistake. As we deserved to.

As bad as we felt about the mistake, we still found several positives. First and foremost, we were reminded yet again that we have a loyal following that reads our work closely and carefully – and for the most part enjoys and benefits from what we do.

And if you all had to read one of our “old” stories a second time, I’m happy to say that it was a strongly worded prediction piece that proved us correct.

Market Matters

Over that past year-plus, the subprime debacle and related credit crisis have prompted discussions about “disaster,” “devastation,” “tragedy,” and “catastrophe.” Homeowners were unable to afford their houses, institutions faced significant asset write-downs, hard-working folks lost jobs, and investors watched portfolio values decline. While these financial consequences undoubtedly have been traumatic for many, the events of the past two weeks can serve to lend some perspective. The death toll in Myanmar has reached about 80,000 with another 50,000 people still missing. Likewise, in China, where the earthquake eventually may take over 50,000 lives as well. Somehow, missing quarterly earnings by a few cents simply does not seem quite as significant.

Speaking of…earnings season plugged along and the results to date have given some analysts (the slightest) reason for optimism. As the week began, about 90% of Standard & Poor’s 500 Index companies had reported and 62% actually beat expectations. While average quarterly earnings have plummeted by over 17% on a consolidated basis, the results looked far stronger once the financial firms were removed from the equation.

Without that struggling sector, first-quarter profits actually increased by more than 7%. Retailers took center stage this week as Wal-Mart Stores Inc. (WMT) proved again that discounters are benefiting from the current consumer nervousness. However, while Macy’s Inc. (M) and JC Penney Co. Inc. (JCP) suffered from weak sales, their results (and guidance) bested Street projections. Sony Corp. (ADR: SNE) rebounded as TVs and cameras moved back onto consumer shopping lists. Bond insurers MBIA Inc. (MBI) and Freddie Mac (FRE) reported wider losses, while UK-based HBSC Holdings PLC (ADR: HBC) realized higher profits.

Board directors and corporate execs again played “Let’s Make a Deal” as CBS Corp. (CBS) announced its intent to buy CNET Networks Inc. (CNET); Hewlett-Packard Co. (HPQ) made overtures toward Electronic Data Systems Corp. (EDS); General Electric Co. (GE) is reportedly putting its long-time appliance biz up for auction; and billionaire stakeholder Carl Icahn pushed for Yahoo! Inc. (YHOO) management to reopen talks with Microsoft Corp. (MSFT). Analysts often welcome merger news and consider it a positive sign of a rebounding business climate. Research in Motion Ltd. (RIMM) shares soared this week on news that its newest Blackberry creation will soon hit the market; and Merck & Co. Inc. (MRK) received a major victory when a Texas appeals court overturned a Vioxx verdict that, initially, awarded $32 million in damages.

Goldman Sachs Group Inc. (GS) apparently enjoyed the limelight (and the stir its analysts caused) two weeks ago. Last week, the investment bank was at it again, forecasting that crude prices will rise to $141 a barrel during the second half of 2008. Oil surged to about $128 a barrel late last week as gasoline prices soared to over $3.75 a gallon – just a week before the widely-traveled Memorial Day weekend.

• China’s central government said yesterday (Thursday) that this week’s earthquake in Sichuan ultimately could result in 50,000 deaths, and catastrophe-modeling firms are estimating the disaster will trigger losses of up to $20 billion, MarketWatch.com reported. Monday’s quake – which measured 7.9 in magnitude – is throwing a “harsh spotlight” on the widening gap between the rich and poor in China, particularly since the losses incurred by the country’s lower-wage classes were mostly not covered by insurance, The Wall Street Journal reported.

• The number of U.S. workers filing for initial jobless benefits increased slightly more than expected in the week ended May 10, the Department of Labor said yesterday (Thursday). First-time jobless claims rose to 371,000, up from 365,000 for the week prior. Economists surveyed by Reuters had forecast the number of new claims at 370,000. The four-week moving average of new claims, considered by economists a more reliable gauge of labor trends, fell to 365,750 in the week ended May 10.

• CBS Corp. (CBS) announced yesterday (Thursday) that it would pay $1.8 billion to acquire CNet Networks Inc. (CNET) in a move expected to help CBS establish a foothold in new advertising markets while also helping with its effort to gain a higher profile on the Internet. CBS will pay $11.50 a share for the online provider of technology news and product reviews, a 45% premium to the price CNet traded at prior to the deal’s announcement, MarketWatch reported.

• General Motors Corp. (GM) yesterday (Thursday) reached a tentative deal with striking workers at a plant in Delta Township, Mich., in what might be the first step towards ending a month-long walkout. However, the strike at the Delta Township factory won’t end until the tentative agreement is ratified, Dow Jones Newswire reported.

• At a conference on bank structure and competition in Chicago, U.S. Federal Reserve Chairman Ben S. Bernanke told banks to hold “generous” capital cushions and actively raise money. “I strongly urge financial institutions to remain proactive in their capital-raising efforts,” Bernanke said. The Fed chair added that he has been encouraged by the success of many banks in raising new capital and he praised foreign-owned sovereign wealth funds for the positive role they were playing as suppliers of badly needed capital.

• U.S. industrial output fell by 0.7% in April from the month before, when output was up 0.2%, the Federal Reserve said. The latest drop was twice that forecast by analysts. The automotive sector saw its biggest drop in nearly a decade as consumer demand for new cars slowed, and a strike at General Motors cut output.

• First-quarter profit for J.C. Penney Co., Inc. (JCP) dropped 50% from last year, but beat Wall Street expectations, causing the department store operator’s shares to rise more than 4% yesterday (Thursday). “I think it’s good news in the sense that things have stabilized. It doesn’t appear to be getting worse,” Wayne Hood, a retail analyst with BMO Capital Markets, told Reuters.

• A multibillion-dollar housing rescue package is close to being resolved, two members of the U.S. Senate Banking Committee said yesterday (Thursday). “We’re very, very close,” Panel chairman Sen. Chris Dodd (D-Conn.) told CNBC. “There’s really maybe one or two issues – maybe only one that’s outstanding here that we need to resolve.”

Source: Global Investing Roundups: Friday, May 16th, 2008