More companies cut back on their dividends

— -- Not only are portfolios shrinking, but so are dividends, creating an ultimate case of adding insult to injury to investors.

It's the latest shocker for investors who count on the steady cash payments from companies to help undo damage to bear-ravaged stock prices. Roughly a third of stock returns the past 50 years have come from dividends, Standard & Poor's says.

But now even that stream of cash is in jeopardy. Almost 10% of S&P 500 companies have cut dividend payments this year, meaning dividends paid in all of 2008 will only be 1.2% higher than 2007. That's the lowest level of dividend growth since 2001 when they fell 3.3%.

And it's only getting worse. Dividend payments in the fourth quarter are expected to be down 10% from the fourth quarter of 2007, the worst year-over-year decline since 1958. And dividends are expected to fall again in 2009, but S&P is yet to estimate by how much.

"This is not going to sit well" with investors whose stocks have already plunged, says Paul Hickey of Bespoke Investment. "People are definitely concerned."

The dividend drought is being caused by a number of factors:

•Record dividend cuts and suspensions by financial firms. The financial crisis has hit dividends hard since banks and brokerage firms have been the largest payers. Of the 41 companies that have cut $37.9 billion in dividends this year, 35 have been financials, accounting for $35.3 billion of the cuts, S&P says.

•Companies outside of financials not making up the void. Outside of financials, companies continue to make their dividend payments and even increase them. Technology has been especially positive, says Brian Belski of Merrill Lynch.

Still, the 212 companies that increased dividends this year have added $18.4 billion to the payout, well below the amount taken out by cuts. "The question is not how many increase, but how bad are the cuts?" says Howard Silverblatt of S&P.