Monday, December 9, 2013

Mixed Economic Signals- The Trouble With Dividends

Despite the rosy outlook by economists and the Street, I think if you looked at little deeper than just the headlines you would see an economy that was just putting along. Although economic growth probably remains positive, that positioning looks precarious and all it could take to move into a retrenchment is some external event. For instance, a Fed tapering.

For instance, one measure I look at is the rolling three month summation of the number of S&P 1500 companies cutting dividends. The theory behind this is that companies will only cut dividends for one reason, pressure on their current business conditions and an outlook for these conditions to persist. A rolling three month summation is used to smooth out the quarterly fluctuations in the data. The following is the latest run of companies cutting dividends through the end of November.

The economy appears to be under stress whenever the count of companies cutting dividends is 50 or greater, This is clearly evident in the previous two recessions. Currently the count of the companies cutting dividends remains above 50 and continues to suggest an economy under stress if not full recessionary conditions.

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