Citigroup's dividend cut unlikely to spark a big trend

— -- Citigroup's diminished quarterly dividend — from 54 cents a share to 32 cents a share — is a sign of how far strapped financial firms must go to preserve cash after bad bets on subprime loans, says Chris Orndorff, portfolio manager at Payden & Rygel.

Still, he says, Citigroup's cut is "not a trend," and additional cuts will be largely limited to the financial industry.

Despite Citigroup's reduction, dividends paid by companies in the S&P 500 index are expected to rise 9.3% this year, says Howard Silverblatt of S&P. That's down from 2007's 11.5% dividend growth rate, S&P says.

Investors will be closely watching for dividend cuts from other industries. Dividends are critical to investors because they have accounted for 40% of the stock market's total long-term returns, Standard & Poor's says.

What investors are gleaning from recent dividend cuts:

•Citigroup's importance in the market's total dividend payout. Citigroup had a dividend yield of 7.4%, making it the S&P 500's eighth-highest-yielding stock and third-largest payer in terms of dollars. But even after the cut, the yield falls to 4.8%, which ranks as the 43rd highest, and the company remains the sixth-largest dividend payer in terms of dollars.

Yield is the annual dividend divided by the stock price. Shares of Citigroup have fallen 52% from their 52-week high.

•A test to see whether other financial companies will protect their dividends. Banks can quickly conserve cash by cutting dividends. Five financial companies in the S&P 500 slashed their dividends last year to save cash, Silverblatt says. Only one cut in 2006.

But despite the industry's troubles, 69 financial companies boosted their dividends in 2007, and Silverblatt expects more.

•A measure of non-financial companies' faith in the future. Companies in other industries, benefitting from global growth, will display their optimism by increasing dividends this year, says Thomas Cameron, portfolio manager at Dividend Growth Advisors.