Dividend Yield? Don't Bank On It!

At a challenging time like this, more and more companies are slashing their dividend payout to conserve cash for either future defensive or offensive measures. Some time ago i have written the possibility of such scenario happening and how true indeed.

JP Morgan, U.S. second-largest bank, slashed its common stock dividend by 87%, a surprise move by a lender considered among the strongest in the U.S. financial sector. This came about despite the bank claiming a "solidly profitable" quarter, and that the outlook being in line with expectation.

It's decision to lower its quarterly dividend to 5 cents per share from 38 cents will save US$5 billion of common equity a year and hopes to pay back the US$25 billion of capital it got in October from the U.S. government's Troubled Asset Relief Program faster.

Among others, Bank of America and Citigroup, have in fact slashed their quarterly dividends to a penny per share since November 2008!

It is highly expected that more companies across the globe will continue to slash dividends in order to conserve cash.

Locally in Malaysia is no exception, whereby Carlsberg Brewery Malaysia announced an unprecedented reduction in dividend distribution by 60% compared to the past. In the past, such company has never failed to give out high dividend yields from the range of 8% to 10%.

With the current global financial crisis and recession looming, one should not blame them for being conservative. After all, no one knows how bad the situation may pan out. It's better be safe than sorry!