Dividends and Wages in Periods of Depression

Report Outline
Dividend Tendencies in Present and Past Depressions
Dividend Policy of American Corporations
Establishment of Corporation Wage Reserve Funds
Special Focus

Dividend Tendencies in Present and Past Depressions

Total dividends paid by American corporations in the depression year 1930 are estimated to have exceeded similar disbursements during the prosperity year 1929 by some $2,000,000,000. Although earnings fell off in the twelvemonth following the stock market collapse, payments to shareholders, especially during the first half of 1930, were in general either maintained at their previous levels or increased. The effects of poor business and falling profits have lately begun to manifest themselves in the form of reduced or omitted dividends, but at the same time numbers of companies are still paying their stockholders at former rates, even though current earnings may be insufficient to cover such payments. Large surpluses accumulated in the recent prosperous years have made this course possible, but the period during which it can be pursued without an upturn in business is obviously limited.

Wage-cutting, while less prevalent in the present depression than in like periods in the past, has taken place to a considerable extent. The purchasing power of the labor group as a whole has been seriously curtailed by widespread unemployment and part-time employment. Even where wage rates have not been cut, factory payrolls have in many instances been sharply reduced through lack of sufficient orders to keep plants in full operation.

The course of dividends so far in the present period of hard times corresponds closely to that of former depressions, with the exception of 1921. Throughout the first months of general financial distress and slowing business activity, shareholders of domestic corporations have received their accustomed income from that source and even additional payments resulting from the previous prosperity. Only subsequently have dividends begun to decline, and if other periods of adversity may be taken as a guide, the reductions in dividend payments will not be so great as the reductions in corporation earnings. Experience also indicates that dividends may be expected to pick up fairly rapidly, once business recovery sets in on a substantial scale.