Dividend Bull Case Deflates As Payouts Rise Least Since 2010

The biggest expansion of U.S. stock dividends in eight decades is slowing to a crawl.

Payouts by companies in the Standard & Poor’s 500 Index are poised to rise about 5 percent in the fourth quarter, the smallest increase since they plummeted in the aftermath of the 2008 financial crisis, data compiled by Bloomberg and S&P Dow Jones Indices show. With earnings and revenue declining, chief executive officers are scaling back a key perk of ownership that has supported American equities for the last six years.

The deterioration adds to concerns including Federal Reserve interest rate policy and a slowing global recovery for American investors who have relied on the stock market as a source of income as bond interest hovered at its lowest levels ever. While stocks still hold a yield advantage over 10-year Treasuries, defending it is getting harder as a six-year expansion in profits grinds to a halt.

“The growth that you can confidently put behind the dividend increase is just not there,” Chris Bouffard, chief investment officer who oversees about $10 billion at Mutual Fund Store in Overland Park, Kansas, said by phone. “Many people have been bringing down their capital market assumptions. Certainly the dividend component not growing as much is one factor.”

More Reductions

The S&P 500 slipped 0.2 percent at 9:55 a.m. in New York after posting three consecutive weeks of gains. Before Monday, the gauge had trimmed the 11 percent selloff that began on Aug. 17 to 3.3 percent. Bouffard said his firm took advantage of the recent declines to add holdings while staying neutral on stocks.

Payout growth is slowing to less than half the pace in the past five years as reductions spread from commodity producers to industrial companies. About $98 billion will be earmarked in the fourth quarter, according to Bloomberg Dividend Forecasts that are based on option prices, company guidance and industry trends. While that’s about 5 percent higher than a year ago, it trails the average rate of 12 percent since 2010.

Ten companies, including Transocean Ltd. and Sigma-Aldrich Corp., will trim payouts by year-end, adding to 12 reductions in the first nine months of 2015 that are already the most since 2009. Including some 80 increases expected in coming months, the total number of dividend boosts will reach 356 this year, down from 375 in 2014.