The Worst Quarter Ever

The earning season is drawing to an end. But even before it began, we already knew that a lot of companies were in big trouble. Their dividends told us.

Historically, far more companies have raised their dividends as opposed to cutting or suspending them. But in the first quarter of 2009 – for the very first time since 1955 when Standard & Poor’s started tracking this – the ratio reversed. For every three companies that raised dividends, four cut them.

This is yet another red flag indicating how tight credit still is.

But how about those dividend hikers?

Many raised their dividends by 5 to 10 percent or more this past quarter. And you can even find some – including Shell and AstraZeneca – that have upped their dividend payments by over 10 percent.

Raising dividends in this period of tight credit and slumping demand is either a huge bullish statement on the prospects of the company in question or…

The biggest con job this side of the Madoff scandal.

Occasionally I find a dividend hiker I don’t like. For example, General Dynamics raised its dividend last month but also announced that it would be laying off 12 percent of its workforce. This is not a company confident about its future earnings growth.

But I’ve found that 98 percent of dividend hikes are legit – made because the company has deep reserves of cash and solid revenues.

Companies like that are good investments right now. You’d be getting a double bang for your buck: increasingly big dividend checks and share prices poised to go up.

[Ed. Note: You can read the investment advice and musings of Andrew Gordon every day in ETR's sister publication Investor's Daily Edge . ]

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