In tough times, stability takes on new luster. When the stock market was booming, the emphasis was on increasing share prices rather than on mundane things like dividends. But with the market’s major indexes approaching their third consecutive year of declines, companies are looking more closely at the dividends they pay. Of the chief financial officers responding to Institutional Investor’s survey, 63.4 percent say their companies pay dividends.
Of those who pay dividends, 37.9 percent say their companies have increased their payouts in the past year. Surprisingly, 7.1 percent of companies that increased their dividends borrowed the money to do so.
To be sure, 15.4 percent of CFOs say their companies have stopped issuing dividends in the past five years. But 37.5 percent of them say they did so to conserve cash, while 25 percent wanted to to invest more in growth.
The CFOs of the companies that do not pay dividends were almost evenly split as to the reason. A plurality, 40 percent, say they needed to conserve cash. But 30 percent say they needed the capital to grow, while an equal number said investors in their companies were looking for stock price growth rather than dividend income.
In an indication of troubled times for investors, 83.3 percent of CFOs believe that dividends are more important to investors than they were a year ago.
Of the companies that pay dividends, 81.5 percent prefer a stable payout rather than a percentage of earnings. That’s because 78.6 percent believe investors pay a premium for such stability.
For all that, only 5.3 percent of CFOs would use available cash to raise dividends. Almost 40 percent would use it to buy back stock, while 28.9 percent would put the extra cash in the bank.
How often does your company issue dividends on outstanding shares of common stock?
Quarterly 61.0%
Twice a year 2.4
Do not issue dividends 36.6
Have you stopped paying dividends in the past five years?
Yes 15.4%
No 84.6
If yes, what was the reason?
To conserve cash 37.5%
To invest more in growth 25.0
Stock price growth was strong without dividends 0.0
Other 37.5
Does your company try to provide annual increases in its dividend?
Yes 46.9%
No 53.1
Over the past year how has your dividend changed?
Increased 37.9%
Decreased 6.9
Stayed the same 55.2
If the dividend has been increased recently, by how much?
By less than 5 percent 33.3%
5 to 10 percent 41.7
11 to 25 percent 8.3
26 to 50 percent 8.3
More than 50 percent 8.3
If your company has increased its dividend, did it do so with the help of borrowed funds?
Yes 7.1%
No 92.9
Does your company have plans to increase its dividend this year?
Yes 35.7%
No 64.3
Does your company have plans to reduce its dividend this year?
Yes 0.0%
No 100.0
If you do not pay a dividend, why not?
Need capital to grow faster 30.0%
Need to conserve cash in tough times 40.0
Our investors are looking for growth in stock price, not dividend income 30.0
If you do not pay a dividend, have you discussed doing so?
Yes 15.4%
No 84.6
Do you expect to pay a dividend in the future?
Yes 73.0%
No 27.0
Assuming the cash were available, which of the following would be your company’s highest priority for use of that cash?
Raise the stock dividend 5.3%
Buy back stock 39.5
Increase R&D spending 5.3
Increase capital spending 21.1
Put it in the bank 28.9
Do you think dividends are more important or less important to investors today than five years ago?
More important 69.0%
Less important 16.7
Of the same importance 14.3%
Do you think dividends are more important or less important to investors today than three years ago?
More important 76.2%
Less important 11.9
Of the same importance 11.9
Do you think dividends are more important or less important to investors today than one year ago?
More important 83.3%
Less important 7.1
Of the same importance 9.5
How does your company prefer to issue dividends?
Prefer to pay a stable dividend 81.5%
Prefer to pay a fixed percentage of earnings 18.5
Do you believe investors pay a premium for a stable dividend?
Yes 78.6%
No 21.4
Do you believe that a stable dividend can provide a buffer for your company’s stock price?
Yes 82.5%
No 17.5
The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.
