Unexpectedly Intriguing!
January 4, 2017

According to Standard & Poor's monthly dividend report, December 2016 saw the following:

  • 4,252 U.S. firms declare dividends, down from the 4,422 that did so in December 2015, but the third highest on record since 2004.
  • 162 U.S. firms announced extra, or special, dividends for their shareholders, up from 2015's 138, but well below the record 483 that were announced in 2012 when imminent changes to dividend tax rates that would take effect in 2013 prompted U.S. companies to beat the clock before the end of 2012.
  • 119 U.S. companies announced they would increase their dividends, up from the 117 that increased them in December 2015. For the year, there were a total of 1,992 dividend increases, the lowest since 2012's total of 1,768 dividend hikes.
  • 59 U.S. firms announced that they would either cut or suspend their dividend payments to their shareholders, up from the 40 firms that cut their dividends back in December 2015 and the most since 93 U.S. firms announced they would reduce their cash dividend payments in December 2012.
  • 2 U.S. firms omitted paying dividends in December 2016 altogether, down from the 14 that omitted paying dividends to their shareholding owners in December 2015.

Focusing on the number of dividend cuts, the 59 U.S. firms that announced dividend cuts in December 2016 is consistent with some degree of economic contraction occurring within the U.S. economy.

Number of Announced Dividend Cuts by U.S. Firms Each Month, January 2004 through December 2016

Looking at our sampling of the announced dividend cuts during the fourth quarter of 2016, we find that most of the apparent distress is primarily concentrated in two sectors of the U.S. economy: the oil & gas industry and the financial industry.

Sampling of Announced Dividend Cuts in U.S. by Industrial Sector, 2016-Q4

We believe the apparent distress in the oil & gas industry is a result of the lingering impact from the collapse of global oil prices in 2015, which bottomed in February 2016 before going on to somewhat recover and stabilize by the end of the year. That distress is also contributing to a portion of the distress in the U.S. financial sector, where banks and other institutions have negative exposure from the loans they made to the industry's smaller players, whose businesses proved less capable of weathering the sustained decline in oil prices and resulting fall in revenues, earnings and cash flows than their larger peers.

Rising interest rates however are also contributing to the distress in that sector, where we can see the impact in both the financial sector and also in the mortgage-based Real Estate Investment Trusts (mREITs), which also saw upticks in their number of dividend cuts.

Since we now have S&P's dividend data through December 2016, we can compare 2016 to previous years. Here are some interesting takeaways from that information.

  • There were a total of 41,408 dividend declarations made during 2016, the most ever on record, as dividends have become increasingly important to U.S. firms.
  • There were a total of 600 extra (or special) dividends announced in 2016, the lowest since 2011's level of 460. The record of 1,056 is held by 2012.
  • 2016 saw 1,992 announcements where dividends were increased, down from the range of 2,127-2,280 announced in the years from 2013 through 2015. The lowest on record is 699, which occurred as a result of the Great Recession, while the 2,280 increases that were announced during 2014 is the highest on record.
  • During 2016, 521 U.S. firms announced they were cutting their dividends, while 138 omitted making dividend payments during the year. Both figures are the highest reported for each category since 2009, when the Great Recession saw 527 firms act to cut their dividends and also saw some 277 firms omit making dividend payments.

Although the fourth quarter of 2016 saw a significant rally in U.S. stock prices, particularly after the U.S. elections, the combination of fewer dividend increases and more dividend cuts announced by U.S. firms indicates that the year was far from being a healthy one for the private sector of the U.S. economy, which may be the most underappreciated economic story of 2016.

Data Sources

Standard & Poor. Monthly Dividend Action Report. [Excel Spreadsheet]. Accessed 3 January 2017.

Seeking Alpha Market Currents Dividend News. [Online Database]. Accessed 3 January 2017.

Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 3 January 2017.

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