James Dimon, like so many incoming chairmen at troubled companies, recently faced a rite of passage at his inaugural annual shareholder meeting.
The ritual involves a variation on the simple question: "Will you cut the dividend?" It was one of the first questions Frank Newman faced when he took the job of trying to turn around Bankers Trust. Mr. Newman opted to stick it out, using the payout as a show of confidence in the bank's prospects. Somewhat surprisingly, Mr. Dimon's noncommittal response about Bank One Corp.'s payout produced only the slightest ripple of reaction among the news media and investors.
Wall Street has grown tired of the dividend.
Long a staple of valuation and investment theories, dividend payments have faded from favor in the market for a variety of reasons, most importantly shifts in the tax code. Taxed as ordinary income, dividends can cost long-term investors twice as much in taxes as capital gains realized from selling shares, leading many institutional investors to value buybacks or debt reduction plans far more.
And dividends are expensive to maintain, especially for companies with large investor bases. The sheer cost of mailing out millions of checks four times a year has spurred some companies at least to scale back their payout policies. Walt Disney & Co., for example, last year switched to an annual dividend rather than bother with quarterly payments.
"It's an honest concern for some investors when they see big dividends," said Philip Orlando, chief investment officer of Value Line's Asset Management division. "You find yourself scratching your head and wondering why management couldn't figure out a better way to use the cash."
The cash involved comes to billions of dollars for the biggest banks. Bank of America, for example, sent out dividend checks totaling more than $800 million in the first quarter.
With banks in a period of dramatic regulatory change that is widely expected to spur a round of M&A, the reasons for redirecting the cash may never be more compelling.
"In my mind, there are few industries outside of stodgy industrials like utilities where large dividends make sense. Financial companies I think of much more as growth companies than utilities," Mr. Orlando said. "Especially in an industry like banking, where suddenly you're operating in a whole new environment, that cash could be used for acquisitions."
In some ways, the decline of the dividend's stature is just one more sign of how technology companies have changed the rules for investing. Intel Corp.'s annual dividends total six cents - a yield of less than one-tenth of 1%. Microsoft Corp. doesn't even bother with a dividend. In contrast, Bank of America distributes a dividend equivalent to a 4% yield, where it keeps company with automobile and chemical companies.
Not all the anti-dividend thinking resides in technology-land, though. Warren Buffett - who aside from a Microsoft investment has shied away from tech stocks in building Berkshire Hathaway's portfolio - reinvests the cash he earns rather than distribute it to shareholders.
For board chairmen like Mr. Dimon, the question of whether it is reasonable to use the dividend as a security blanket in times of crisis is almost beside the point.
Certainly, investors no longer need the dividend to provide evidence of financial health - not with the massive quantity of investment information that is already available to them at the touch of a button. In most situations, investors know well in advance of corporate announcements that a company probably could use the cash.
Plus the development of a wide range of equity and debt hybrid products in recent years have also introduced countless options other than common stock to appeal to income-focused investors.
By purchasing common stock instead of bonds, or preferred shares, or convertibles, or any of the other alternatives available, investors seem to have decided that, all things considered, they would rather the company keep the cash.