Dividend Slashing Expected to Continue

Turmoil in the credit market may lead cash-strapped companies to start cutting dividends, a move many CEOs and CFOs are loath to make, according to Financial Week.

 

Dividend cuts have already begun to surface among financial institutions, mostly those exposed to the troubled mortgage markets.  Freddie Mac, for instance, last week confirmed it would halve its annual dividend to $1 after warning investors of the possibility when it reported a $2 billion loss during its third-quarter earnings call the week before, FW reports.

 

Freddie Mac also said it would issue $6 billion in preferred stock because it was in danger of not having enough capital to cover mandatory reserves for mortgage commitments.

 

Howard Silverblatt, a senior index analyst at Standard & Poor’s, told FW he wouldn’t be surprised if financial companies continue to decrease dividends, and if they don’t, many are likely to stop raising their dividends.