Syeda Seirut Javed
8 min read
From 2000 through 2009, dividends earned S&P 500 investors an annualized 1.8%, according to Hartford Funds. Even with those payments, the index posted a negative total return for the decade. Over the longer stretch from 1940 through 2025, Hartford found that dividend income accounted for an average of 33% of the index’s total return. For investors who rely on quarterly dividends to pay bills, that history raises a practical question: when sales slow and debt payments take priority, how much of that income can they count on?
The COVID-19 pandemic showed how quickly that income could change. S&P 500 companies paid $119 billion in dividends in the second quarter of 2020, slightly more than a year earlier, as companies honored dividends declared before the pandemic. During those same three months, 50 stocks in the index cut or suspended their dividends. According to S&P Dow Jones Indices, those decisions reduced expected annual payments by $29 billion.
On November 2, a U.S. soup and snack maker paid shareholders 25 cents a share, down from 39 cents in August. An investor with 1,000 shares who collected $390 in August received just $250 in November. Management cut the dividend by nearly 36% to pay down debt faster after quarterly sales fell 8%. For income investors, the warning signs matter most while the old dividend is still in place. That was the issue CNBC’s Jim Cramer raised about another food stock in September.
For consumer businesses, an early clue can be what shoppers decide they can do without. A family that skips dinner out still needs groceries, but even in the cereal aisle, it can switch brands. Those everyday choices help explain why Cramer sees 10 familiar consumer stocks so differently. On the September 18 episode of Mad Money, Cramer said he had never expected to see a familiar cereal maker yield 6.72%. The dividend had caught his eye because the shares had fallen so far. What troubled him was why a business he had long considered dependable was suddenly offering that much income.
Less than two weeks later, a caller asked Cramer about a pipeline operator yielding 7.6%. This time, he liked what he saw. The operator’s second-quarter results help explain what gave him confidence in the higher payout. In November, the operator raised its quarterly distribution by 12.5%.
Cramer has applied similar reasoning in his Charitable Trust. In his 2022 investing guide, he recalled buying shares of a drugmaker yielding 5% to 6% while investors worried about the loss of patent protection on its drug, Humira. Cramer believed the company could sustain its dividend and saw two drugs whose combined sales could eventually exceed Humira’s peak. It would take time for those sales to materialize.
