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Business

Dividend payouts are making a comeback of sorts

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Dividends are gaining in popularity among companies, but they are still not close to being as common as they were in the 1980s, before a fascination with technology companies and potential capital gains led many investors to view dividend payers as stodgy and boring.

But while overall dividend payments have continued to rise this year, a growing number of companies are being forced to reduce or eliminate their payouts.

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Standard & Poor’s Dow Jones Indices calculated that at midyear, 54 percent of companies with market capitalizations of at least $100 million were making dividend payouts, up from 52 percent at the end of 2012.

That is the highest figure for such companies since 1994, when it was also 54 percent. The figure fell as low as 38 percent at the end of 1999, at the height of the technology stock bubble.

“In the late 1990s,” recalled Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices, “dividends were the kiss of death,” and few companies wanted to start paying them.

Investors were more interested in possible capital gains, and executives preferred share repurchases, which could raise the share price and make their stock options more valuable.

“Then we got the recession” of 2001, Silverblatt said.

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In 2003, Microsoft and Qualcomm began paying dividends, and Congress changed the tax law to reduce taxes on dividends.

Among smaller companies — defined as having market capitalization of less than $100 million — the proportion of companies making dividend distributions has always been smaller, but it too is growing. The current figure, 31 percent, is up from 28 percent at the end of last year and is higher than at any time since 1984.

The figures cover all common stocks traded in the leading US markets — the New York Stock Exchange, the American Stock Exchange, and Nasdaq. They exclude depository receipts on foreign stocks, as well as publicly traded partnerships.

All told, large companies are promising annual payouts of $460 billion, while smaller ones are promising $1 billion. Large company payouts rose 18 percent in 2011, and nearly that much in 2012, and the rate has grown another 9 percent so far this year.

The actual increases, however, may not be quite that good. The figures are based on annual dividend payout rates for companies that had market capitalizations of at least $100 million at the date shown. Lately, with the stock market rising, that has caused some companies to move from the smaller group to the larger one. At the end of June, there were 3,875 large companies, 119 more than at the end of 2012, and 2,599 smaller ones, or 94 fewer than at the earlier date.

That shifting membership helps to explain one apparent anomaly. The figures show a large increase in small company dividends in 2008. That almost certainly is explained by the fact that many companies that had been classified as large ones were moved to the smaller group in 2008, as share prices plunged. As prices recovered in 2009, many of those companies — and their dividends — moved back into the larger category.

For many decades, Standard & Poor’s has been counting the number of companies that initiated or increased their dividends each year and compared it with the number that reduced or eliminated their payouts. Although there are still far more dividend increases than reductions, the number of the companies cutting back has been rising rapidly since the middle of last year. That is a possible indication that more companies are facing financial strain. Silverblatt said that most of the companies making cuts had been small ones.

In the first half of this year, 204 dividends were reduced or eliminated. That figure is much lower than the levels of 2008 and 2009, when the credit crisis was intense, but it is only one lower than in all of 2002, as companies recovered from the 2001 recession, and is more than in any other full year from 1994 through 2007.

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