Despite enthusiasm for Alibaba and Apple and other prominent names, Wall Street is abuzz with warnings that a bear market is coming. Although the rational approach to such talk is to maintain appropriate asset allocations, many advisors are likely to hear from worried clients.

It may be helpful to point out that dividend-paying stocks -- and the mutual funds and ETFs that concentrate on them – have historically continued dividend payments. Indeed, many increased when stock prices have fallen.

Of course, advisors and their clients will recall the painful experience of the recent financial crisis -- when many banks, to shore up their shaky balance sheets, eliminated their dividends. In fact, there were 606 negative dividend actions (decreases and omissions) in 2008, according to data from Standard & Poor's Dividend Record, and 808 in 2009. (These numbers are from a universe of roughly 10,000 U.S. public companies that report dividend data to S&P.)

In fact, the 2009 negative actions were the highest since S&P began tracking dividends back in 1956.


But it is worth noting that, even during the financial crisis, positive dividend actions (increases, initiations, resumptions and extras) outweighed the negatives.

In 2009, there were almost one and a half times as many positive dividend actions as negative. That's the lowest ratio of positive to negative dividend actions in the past 58 years. (There were actually three times as many positive dividend actions as negative in 2008.)

More broadly, from 1956 through 2013, the average year between saw 9.81 positive dividend actions for every negative one. In that time, there were 11 bear markets and nine recessions.


Other than in 2008 and 2009, the worst ratios were in 1991 (when the positive/negative ratio was 3.34), 1982 (3.75), 1970 (3.86) and 1958 (2.73). 

Three of those years also saw the highest number of negative dividend actions outside the recent financial crisis: In 1982, there were 573 cuts and omissions, while 1970 saw 496 and 1958 had 738 -- the record until 2009. (The ratio was low in 1991, even though other years had more negative actions, in part because there were fewer than normal positive actions.)

What do the four years with the lowest ratios of positive to negative dividend actions have in common? For all or part of each of those years, the U.S. economy was in recession. In 1958, U.S. unemployment reached a post-war high of more than 5.1 million people.

And what were the markets doing as companies cut or omitted dividends in record numbers? The year 1958 was bracketed by a bull market that began in late October 1957 and ran through mid-December 1961. Likewise, 1991 was inside a bull market that ran for almost 150 months, from early December 1987 through late March 2000 -- during which the S&P 500 rose by more than 582%.


That leaves us 1982 and 1970, both mixed years for stocks.

In 1970, the S&P 500 was in a bear market through late May, when a bull market began and lasted until early January 1973. For the bear market months, the average number of dividend cuts and omissions was 36.4; for the bull market months of 1970, it was 44.9.

In 1982, the bear market ended in early August. For the bear months that year, there was an average of 45.3 negative dividend actions; for the bull months, it was 51.2. (For this exercise, we counted a month as bull or bear if that condition existed for more than half the month.)

As it turns out, negative dividend actions are more closely related to recessions than bear markets -- which don't always occur simultaneously. We don't have dividend data for the Depression, but the Great Recession saw the highest number of negative actions in modern times. Even then, more companies added to shareholder payments than subtracted from them.

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