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

• The coming global “arms race” to get nationwide broadband connectivity. The arms race recently heated up with the launch of Australia’s $31 billion nationwide broadband plan, which dwarfs the $7 Billion contemplated in the current U.S. budget.

• China’s has accelerated its broadband buildup, which was highlighted by Corning in its conference call as compensating for a weak U.S. telecom segment. China’s broadband buildup is a component of its $585 billion stimulus package.

• Inventory liquidation appears to be behind us, and carriers, who are facing double-digit internet traffic growth, cut expenses for equipment to about 2% to 3% of revenue, down from their traditional level of 15% of revenue.  This cannot go on for long.

Well, these same three factors are propelling Ciena Corp. (Nasdaq: CIEN).  Corning leads in optical fiber, but Ciena leads in the supply of sophisticated networking equipment.

Ciena just launched a partnership with NYSE Euronext (NYSE: NYX) on something that is very near and dear to the hearts of investors: “Speed and ultra-low latency to facilitate unparalleled execution of equities quotes, trades, options data and other financial transactions in the U.S., Europe and globally.”
Indeed, few activities have the sensitivity to speed, volume and reliability of data transmission as stock and options trading.

Ciena’s proprietary dense wavelength division multiplexing technology gets up to 100 Gigabytes per second, a first in the world.  So, if you want to be fast and have huge data transmission capabilities, you have to have Ciena’s products.  But Ciena’s competitive advantages do not stop there.

Ciena’s products allow carriers to get more capacity from fiber optic networks that are already deployed.  And their intelligent traffic allocation offers superior efficiency, as well.  These are competitive advantages that take time to match.

I absolutely love these technological leaps, which produce margin expansion and sales pickup at the same time, the surefire recipe for a bigger bottom line.

And as I mentioned with regards to Corning, the United States is lagging behind 14 other Organization for Economic Cooperation and Development (OECD) countries in broadband access, price and speed.  This is a national crisis.

The telecommunications industry will not be able to stay put with the status quo.  There is an explosion of video over the Internet.  Not only do we see the phenomenon of YouTube.com, but we now have many other sources of voracious bandwidth accelerating dramatically.

Mainly, there is a huge pickup in activity in streaming TV series, sports and movies on sites like Hulu.com, as well as movie and song downloads.  In addition, you have video conference calls including earnings results and video web-events, such as Money Morning’s own webinars.

Also, there’s the push towards cloud computing, which features all the data and applications residing and being processed in a remote server, like those of Amazon.com Inc. (Nasdaq: AMZN) ad Yahoo! Inc. (Nasdaq: YHOO).

Last but not least, there’s been a huge surge in online video gaming and you see product demos and video ads populating many search and web publications.  And do not forget “computing everywhere” with the proliferation of iPhones, RIMM’s and other smartphones, as well netbooks, which are constantly connected to the web with broadband wireless access.

The bottom line is that video traffic and other broadband-chugging applications are exploding.

And, while traffic is exploding, the telco carriers in the United States, like most companies, went into the fetal position and decided to conserve cash.  Thus, they kept equipment purchases to the absolute bare minimum, utilizing whatever inventory they had before reordering.

Thus, it was no surprise that Ciena had a weak first quarter and lowered revenue guidance for its fiscal fourth quarter to $190 million-$210 million.

But this inconsistency will not last long, as unemployment is stabilizing and the core of the financial system has become progressively unclogged. The amount of pent-up demand that has built up will mean an explosive uptick in fourth-quarter sales.

And Ciena, a less diversified and much smaller company than Corning, is bound to see its stock price appreciate over a long period of time, and by a much higher percentage.

Ciena is trading at only one times book value.  And, despite its negative operating margins, the company has cut expenses, has a strong cash position of more than $900 million – enough to retire its entire long term debt and have almost $200 million left – and a much more flexible cost structure than in the past.

Thus, the huge operating leverage to volume puts this stock in a superb position to take advantage of the exponential revenue growth that will “surprise” the markets once the telcos start buying Ciena’s products en masse.  Wall Street is asleep at the wheel on this one, with many negative views abounding.  But traders have already started covering shorts and some started going long.  And in the recent rally, Ciena has led very nicely, outperforming both the Nasdaq Composite Index and the Standard & Poor’s 500 Index by about 30% since March 9.

The stock has more than doubled since hitting its March low, and it’s still cheap.  But with a rally of this magnitude and the summer doldrums near, where investors take time off and tech equipment sales are typically are back loaded, it could be imprudent to buy an entire position here.

Recommendation: Buy half a position of Ciena Corp. (Nasdaq: CIEN) now and wait for a significant profit-taking correction in order to gradually edge into it (**).  With luck, we might be able to buy part of the second tranche between $8 and $9 a share.  Go play some golf this summer and hold for 12 to 18 months.

(**) – Special Note of Disclosure: Horacio Marquez holds no interest Ciena Corp.

How to protect your cash from the “Bailout Bombshell” right around the corner…

Buy, Sell or Hold: Ciena Corp. (Nasdaq: CIEN), the Second Company to Profit from the Global Broadband Arms Race

“I am delighted that John has agreed to join Bank of America,” Kenneth D. Lewis, Bank of America’s chairman and chief executive, said in a statement, The New York Times reported. “His experience and expertise will be invaluable as we put our two companies together and move forward as the premier financial services company in the world.”

Thain will oversee a newly created Global Banking, Securities and Wealth Management unit after the merger with Bank of America he negotiated for Merrill Lynch just last month.

Current Bank of America operations that account for this area make up approximately 35% of total revenue. That figure is only expected to increase after the merger.

But despite Thain’s prominent role post-merger, Bank of America was quick to underscore the new position did not make Thain the heir apparent in eventually succeeding current CEO Lewis.

“There’s been no commitment around that,” BofA spokesman James Mahoney said in an interview with Bloomberg News. Thain “is joining the team as a senior leader.”

Without a clear path of succession, industry analysts expect Thain’s tenure in his new position as head of investment banking at Bank of America to be short. Most assume that Thain will be seeking another shot at the top spot elsewhere.

“The fact is that he’s a CEO — he’s not going to stay long,” Greg Donaldson, director of portfolio strategy at Donaldson Capital Management, told Reuters.

Thain took over the top spot at Merrill Lynch in December 2007. At the time, analysts applauded the choice due to Thain’s extensive Wall Street background.

Prior to taking over for ousted CEO E. Stanley “Stan” O’Neal, Thain was the chief executive of NYSE Euronext (NYX). Before Thain’s time at NYSE, he was president and chief operating officer at Goldman Sachs Group Inc. (GS).

Source: Merrill Lynch’s Thain to Remain with Bank of America

Most investors have never even heard the term – and are truly shocked to discover these “off-the-books” trading networks actually exist.

But to Wall Street insiders looking to anonymously move billions of dollars in stocks, bonds, and other investment instruments, dark pools are de rigueur – especially when you’re an institutional trader who doesn’t want to reveal your intentions or your actions to the “rest” of the market, until after the fact when the orders are “printed.”

And that makes these dark pools of capital highly problematic when it comes transparency: There is literally none in most pools and only limited visibility in others.

Dark Pools: From Trading Haven to Heavyweight

Dark Pools are electronic “crossing networks” that offer institutional investors many of the same benefits associated with making trades on the stock exchanges’ public limit order books – without tipping their hands to others, meaning publicly quoted prices aren’t affected. This is the capital markets’ version of a godsend – especially for traders who desire to move large blocks of shares without the public investors ever knowing.

Some examples of so-called crossing networks include Liquidnet Inc., Pipeline, the Posit unit of Investment Technology Group (ITG), or the SIGMA X unit of Goldman Sachs Group Inc. (GS).

In an era in which “secret” transactions contributed to what’s shaping up to be the largest credit crisis in history, you’d think that any mechanism that allows insiders to trade in complete secrecy and with total anonymity would be scrutinized more closely than a Roger Clemens vitamin shot. But that’s not the case with Dark Pools.

As has long been the case, the old boys really do like to operate behind closed doors, on the other side of the “velvet rope” – beyond which the un-anointed daily working stiff may never pass. And Dark-Pool operators are only getting more private as computerized trading becomes more sophisticated and large-scale-order placement evolves into a science all to itself.

Dark Pool ownership involves almost the entire institutional-trading sector, consisting of independents, broker/dealer-owned pools, consortiums and even – as hard as this is to imagine, given the public’s trust – the stock exchanges themselves (See accompanying chart).

And business is booming.

According to the latest data, nearly 12% of daily U.S. stock-trading volume is presently conducted via the 40 or so Dark Pools operated by the “usual suspects.”

According to The Wall Street Journal, Credit Suisse Group AG (ADR: CS) is assembling a network of 30 Dark Pool partners, while JP Morgan Chase & Co. (JPM) is trying to become the Google Inc. (GOOG) of the Dark Pool world by aligning itself with Neovest Inc. Not to be left out, Goldman Sachs recently struck reciprocal deals with rivals UBS AG (UBS) and Morgan Stanley (MS) to allow previously proprietary trading algorithms to work on each other’s desktop trading systems.

This is something the stock exchanges don’t want to see because it strips them of order execution revenue. Which is why they’re getting into the game, too. At the present time, the Nasdaq (NDAQ) alone shunts some 18% of its volume – or roughly 350 million shares a day – through what insiders euphemistically refer to as its “non-displayed platforms,” and also has struck a deal with five unnamed Dark Pool operators that are rumored to route nearly half of the total Dark-Pool volume in the United States today.

NYSE Euronext (NYX) plans to connect up to 30 such pools, so don’t think for a New York minute that this isn’t a global phenomenon – Dark Pools exist all around the globe.

We’re still in the early days of this movement. That means there are still lots of things to be worked out from a technical standpoint. For instance, there’s very little in the way of proprietary software that enables any Dark Pool operators to “talk” with their competition.

But we think that’s going to change in a real hurry in the next few years, when as much as 50% of all U.S. trading volume will be handled by “Dark Pool Alliances.”

Dark Pool Downers?

While it’s hard to say just how this will affect individual investors like us, my experience as a professional trader suggests that there are a few “realities” we can count upon.

As you might expect, not all of them are good.

Let’s look at the top three:

• First, as more volume moves to the so-called Dark Pools, the very notion of what constitutes “public pricing” becomes suspect. Practically speaking, if we’re seeing only 50% of the trading volume in a given stock, who’s to say that the pricing we’re seeing is accurate if the other half remains a mystery.

• Second, the small- and mid-cap stocks that for so long have been the domain of smaller investors will likely become harder to trade. The reason: Dark Pools will absorb the liquidity that’s presently out in the open, just as a “black hole” in outer space sucks in all the matter that’s nearby. The net effect could be that smaller transactions become more inefficient, or that public pricing actually disconnects from private pricing. Either way, individual investors may not get the best possible prices.

• Third, you can bet regulators will get interested if there is even a whiff of impropriety at the expense of smaller investors who perceive (and rightly so) that they are being “locked out” of the markets by the big boys yet again.

On the other hand, maybe those regulators don’t care at all. With the economy going the way it is right now, there’s plenty more to worry about… like making it out of the water and back up onto the beach before the music stops and “you-know-who” grabs you from below……da-dun…da-dun….da-dun….da-dun.

Source: Are “Dark Pools” Destined to be the Capital Markets’ Next Black Hole?

The third-largest U.S. securities firm lost $1.96 billion, or $2.19 a share, compared to a $2.16 billion gain, or $2.26 a share, a year earlier.

Over the first quarter, the company recorded more than $9.5 billion in write-downs and losses on subprime mortgages and other risky assets. It also posted $2.9 billion in net revenues (a 69% drop) and $805 million in investment-banking fees (a 40% drop) in “this challenging market environment, which continued to deteriorate during the quarter,” according to the company’s earnings release.

Merrill’s earnings missed analysts’ already low expectations, and it may cost the already struggling financial firm.

Citing “deteriorating conditions in the mortgage market” and the potential for another $6 billion in write-downs, Moody’s Investors Service said it may cut Merrill’s credit rating, which would be the second time in six months. In October, Merrill’s rating was lowered one level to A1, the fifth highest of 10 investment ratings, Bloomberg reported.

And some top investors are demanding better performance.

“Merrill Lynch has to show profitability,” Ken Crawford, senior portfolio manager at Argent Capital Management in St. Louis, which owns about 160,000 Merrill shares, told Bloomberg. “They can’t have negative return-on-equity quarters and expect to make investors happy.”

The rest of this year will be a true test for Chairman and Chief Executive John Thain, who took over Stan O’Neal’s post Dec. 1 after leaving his CEO post at NYSE Euronext (NYX).

“Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment,” Thain said in the company statement. “… we remain well capitalized. In addition, our global franchise is positioned strongly for the future, and we continue to invest in key growth areas and regions.”

Though Merrill and many financial service companies are still struggling to rebound from the subprime-induced credit crisis, there’s a small group of peer companies that may have put the worst behind them.

Goldman Sachs Group, Inc. (GSC) Morgan Stanley (MS) and Lehman Bros. Holdings Inc. (LEH) all beat earnings estimates last month.

Citigroup Inc. (C) – one of the hardest-hit financials – reports its first-quarter earnings tomorrow (Friday).

With main indices down significantly since Jan. 1, a slew of companies – including many financial firms – recently (and gladly) offered to share how much they pocketed from their stake in Visa’s IPO:

• Bank of Hawaii Corp. (BOH) said its net income would jump by $7 million to $9 million in the first quarter, much of which will come from a mandatory redemption of its Visa stock, the Star Bulletin reported.

• National City Corp. (NCC) said it would post a $450 million cash gain from selling about one third of its stake in Visa, BusinessWeek reported.

• West Virginia’s City Holding Co. (CHCO) banked $2.3 million from a partial redemption of its Visa holdings.

• Overseas, federally owned Banco de Brasil took in $207 million from selling a portion of its Visa stakes. Its private sector rival Banco Bradesco (BBD) made $201 million from Visa’s IPO. Both figures are before tax, Business News Americas reported.

• South African bank FirstRand said last week that it received a pre-tax gain of $123 million from its shareholding in Visa, iAfrica reported. Of that, $69 million was from the sale of its Visa’s shares and $54 million is the value of the remaining shares. FirstRand is locked into holding those remaining shares for three years.

• Melbourne-based Australia and New Zealand Banking (ANZBY) reported that it expects to pocket $350 million pre-tax from 50% to 60% of its shares in Visa. Follow Aussie banks National Australia Bank and Westpac are expected to turn a $200 million and $100 million profit, respectively, The Age reported.

• And in China, China Life Insurance (LFC) sunk $300 million into Visa’s IPO. Assuming it bought its shares at Visa’s opening price of $44 a share, that investment is now worth more than $439.5 million at Friday’s $64.46 closing price. Also, China Investment Corp. – the country’s $200 billion sovereign wealth fund – made an undisclosed investment in Visa’s IPO, Today’s Financial News reported.

“It’s not standard practice to say it, but typically big institutions do if they are part of the IPO process and receive allocation,” said Money Morning Investment Director Keith Fitz-Gerald.

Still a Buy?

For its March 19 IPO, Visa’s 406 million shares were originally priced at $44 each – well above the expected price range of $37 to $42 a share. The $17.86 billion proceeds it took in made it the biggest U.S. public offering, shattering the $10.6 billion AT&T Wireless raised in its April 2000 IPO.

Globally, only one deal was larger: The October 2006 IPO of the Industrial & Commercial Bank of China, or ICBC, which raised $19.1 billion – or nearly $22 billion when the over-allotment provisions were fulfilled.

However, $44 was the price underwriters and large-scale investors got in at.

Visa’s shares opened at $59.50 on the New York Stock Exchange (NYX), and traded as high as $65, before closing at $56.50, up $12.50 a share, or 28.41%. The following day, shares jumped another 13.89%.

The initial run-up and continued growth gives the San Francisco-based Visa a market value of more than $52 billion.

And shareholders are still piling on – despite companies publicly declaring they are cashing out – because of Visa’s dominant market position and the growing shift into electronic payments.

“Visa’s CEO has got it together,” Fitz-Gerald said. “He’s targeting Chinese growth and that should go right to the bottom line.”

As far investing in the company, Fitz-Gerald suggests buying in increments to capture safest gains.

“I wouldn’t jump all in now, but there is long term value.”