Fewer U.S. Firms Raise Dividends in December

Fewer U.S. companies raised their dividend payments in December than a year earlier, a surprisingly stingy ending to a year in which the government slashed tax rates on dividend income.

But the number of extra, or one-time, dividends was the most for any December in more than a decade. That may indicate that more firms are balking at committing to a higher ongoing dividend rate, but are willing to make one-time payments to share profits with investors.

A total of 136 companies raised dividends last month, down from 150 in the same month of 2002, data tracker Standard & Poor’s said Monday.

It was the first month since April that the number of dividend increases was below the year-earlier level, S&P; said.

Congress in May approved President Bush’s idea to cut the top tax rate on dividend income to 15% from 38.6%. The move was expected to encourage companies to pay more of their profits directly to shareholders via cash dividends.

Many companies responded as expected: From May through November, 908 companies raised their dividends, a jump of 29% from the 702 that increased payouts in the same months of 2002.

Joseph Lisanti, editor of S&P;’s Outlook investing newsletter, said investors shouldn’t draw conclusions from one month’s data. Still, he called the number of dividend increases in December “somewhat disappointing.” If the trend persists, he said, “It could indicate that some companies are worried about continued profit growth.”

Corporate earnings overall rose to record levels in the third quarter as the economy rebounded, and are expected to rise further in 2004.

Companies generally are careful about boosting their regular quarterly dividend rates because they know many shareholders come to depend on that income once it is promised. If profits plunge, and a firm is forced to cut its dividend, its image can suffer a big blow.

Rather than raise the regular dividend rate, some companies over the years have opted to make extra payments periodically to reward shareholders.

A total of 197 companies declared extra dividends in December, up from 100 a year earlier. The number of extras was the highest for any December since 1989, S&P; said.

One of the firms declaring an extra dividend last month was truck maker Paccar Inc. The company said it would make a year-end payment of $1.20 a share, citing its “steady profits and ... a strong balance sheet.”