A record number of companies in Australia will cut dividends in 2009, according to AMP Capital Investors chief economist Shane Oliver.
His comments follow an overnight report by Standard & Poor's (S&P) which said a record number of companies decreased their dividend payments during the first three months of the year.
"It basically reflects the times, that companies are under pressure to reduce their gearing levels. So short of raising new capital, they're retaining capital in the form of retaining dividend payments and using that to pay down their debt," Oliver said.
"I think we will see a record number of companies cutting dividends in Australia as well."
According to AMP Capital data, 40 per cent of Australian companies said they would decrease or scrap payouts altogether during the February reporting season.
"If, as we expect, profits fall by another 30 per cent going forward, dividends are likely to be cut further," Oliver said.
"This is clearly bad news for investors, particularly those relying on the cash flow from dividends, whether they own shares directly or via managed funds."
But even if current dividend payments are cut by another 30 per cent, this will take the dividend yield from the current 7.2 per cent to 5 per cent, Oliver said.
After grossing up for franking credits this is still 6.5 per cent, which is well above the yields now available from bonds and cash.
S&P said 367 of the approximately 7000 publicly-owned companies that report dividend information to S&P's Dividend Record decreased their dividend payments during the first three months.
That represents a 332 per cent increase from the 83 issues that decreased their dividend during the first quarter of 2008.
