Some Depression-era U.S. dividends still flowing

CHICAGO (Reuters) - Businesses generally don't get a lot of credit from investors when they maintain or even raise their dividends -- but that was before the current financial crisis hit and forced many companies to cut or suspend those payouts to preserve cash.

So it was heartening news on Wednesday when Caterpillar Inc (CAT.N) said shareholders could still count on its quarterly dividend, and United Technologies Corp (UTX.N) raised its payout.

The moves -- signs that two of the leading U.S. industrial companies are not hoarding their cash -- amounted to a rare declaration of corporate optimism during a downturn that many are calling the worst financial crisis since the Great Depression.

"It's a much-needed confidence booster in a tough environment," said Edward Jones analyst Matt Collins. "The only thing nicer would be to see more executives personally buying their own stock."

Caterpillar declared a quarterly dividend of 42 cents a share, the latest in an unbroken series that began way back in November 1933 -- in the midst of the last worldwide economic downturn.

The world's largest maker of construction and mining equipment -- and one of the few U.S. companies to successfully tap the credit markets in recent weeks -- said the payment was yet another sign of its financial health and its ability to weather the current economic gales.

"Since paying that first dividend three-quarters of a century ago ... Caterpillar has faced many challenging economic circumstances, including those facing the global economy today," Jim Owens, chief executive of the Peoria, Illinois-based company, said in a statement.

For manufacturing conglomerate United Technologies, which raised its dividend to 38.5 cents per share, the payout was the latest in a series that began in 1936.

In a statement, Chief Executive Louis Chenevert said the payment "reflects our confidence in sustained earnings growth" despite "today's tough economic environment."

DIVIDEND CUTS

In recent days, a number of leading companies, including financial services leader Bank of America (BAC.N) and home builder Lennar Corp (LEN.N), have done just the opposite, slashing their dividends as they race to conserve cash amid the credit markets' seizure.

In all, 25 Standard & Poor's 500 .SPX members have cut or suspended their dividends so far this year -- a move that most executives try to avoid because of the message it sends.

"I think that companies get to the point of cutting dividends when they're under financial stress or if they believe in this environment they don't need to pay out quite as much," said Dan Genter, chief executive of RNC Capital Management LLC in Los Angeles.

"If we feel there is a high risk of a dividend cut," he added, "we'll get out of that company."

In the financial sector alone, 21 companies have either cut or suspended their dividends this year, costing their shareholders $30.4 billion in all, according to Standard & Poor's senior index analyst Howard Silverblatt.

MORE PAIN TO COME

Based on already announced cuts, this quarter will be the first since the second quarter of 2003 that U.S. shareholders will see an overall dividend decrease.

At this point, it looks to be a single-digit percentage decline in total dollars paid out to shareholders. But a double-digit drop -- the first since 1958 -- is possible, Silverblatt says.

"The fourth quarter's going to be difficult; next year's going to be difficult," he said.

Ingalls & Snyder analyst Alex Blanton said Caterpillar shareholders might face some disappointments of their own in the new year -- although he doesn't think it will come in the form of a dividend cut.

Since May, shares of the company have fallen nearly 50 percent on concerns about its prospects if the world tips into a major downturn, as the International Monetary Fund now fears.

"CAT would like to maintain its dividend unless the situation gets very dire," Blanton said.

"It's not dire yet, and probably won't be, given its diversified product line and the still relatively strong emerging and commodity-related markets. But (this dividend payment) doesn't mean sales and earnings won't fall next year."

(Additional reporting by Kristina Cooke and Scott Malone; Editing by Patrick Fitzgibbons and Lisa Von Ahn)