Unexpectedly Intriguing!
13 February 2014

In order to sustain dividend payments to their shareholders, companies generally need to have a couple of things going for them:

  1. They need to be profitable.
  2. They need to generate sufficient cash flow to make the dividend payments.

If either one of these things falls short on a sustained basis, the company may need to reduce their dividends. And that, of course, is almost universally bad for share prices, given the basic fundamentals for how stock prices work.

That in turn is bad for the company's primary owners and managers, who in addition to taking a financial hit on the shares of stock they might own in the company, also have to deal with a large number of very angry shareholders who weren't part of the decision, whose anger might force changes in the company's business practices and executive ranks.

So whenever a company acts to cuts its dividends, it's a pretty good indication that the company is experiencing some kind of real economic distress, because the outcome of that action is something that the company's primary owners and managers would seek to avoid if it were at all possible because of the pain associated with it for them. Yesterday, we showed that the number of U.S. companies acting to cut their dividends is once again consistent with recessionary conditions being present in the U.S. economy:

Number of Publicly-Traded U.S. Companies Decreasing Dividends, January 2004 through January 2014

So is there a connection between companies cutting dividends and the employment situation in the United States?

We've taken the chart we normally use to track the change in the number of employed Americans by age since the total employment level in the U.S. peaked in November 2007, just before economic expansion peaked and the nation officially entered recession a month later, and have indicated with light red shaded lines the periods coinciding with an elevated number of companies cutting their dividends:

Change in the Number of Employed by Age Since Total Employment Peak in November 2007, through January 2014

What we find is that whenever there are steadily more than 10 companies acting to cut their dividends in any given month, the trend in the number of employed Americans either falls, as when the economy is experiencing a full-fledged recession, or goes flat, as is the case at present, when an improving trend for employment stalls out.

What we observe with the employment situation at present is consistent with our previous observation that the U.S. economy is experiencing a microrecession.

Labels: , ,

About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Stock Charts and News

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links

Useful Election Data
Charities We Support
Shopping Guides
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.