Nearly 100 companies cut their dividends during the second quarter, the biggest quarterly decline since 1991. Meanwhile, fewer companies raised...

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Nearly 100 companies cut their dividends during the second quarter, the biggest quarterly decline since 1991.

Meanwhile, fewer companies raised their dividends, and the ratio of increases to decreases fell to its lowest level since 1991.

“Companies are very nervous about what the future holds for the economy and markets, and dividends are on the receiving end of that uneasiness,” says Howard Silverblatt, senior index analyst for Standard & Poor’s.

Most of the weakness has been in the financial sector, traditionally a high dividend area. Of the 97 dividend cuts or suspensions in the second quarter, 59 were by financials.

Banks are scrambling to preserve cash amid the credit crunch.

Wachovia (WB), for example, slashed its quarterly dividend by 41 percent in April to 37.5 cents from 64 cents, and student lender Nelnet (NNI) said in May it was temporarily suspending its quarterly dividend of 7 cents.

Morgan Keegan analyst Robert Patten says still more dividends are at risk, as regulators push banks to bolster their balance sheets.

Thirty to 40 percent of the nation’s top 50 banks are likely to add capital by either cutting their dividends or raising cash, Credit Suisse analyst Todd Hagerman estimates. Many banks have been issuing new stock to raise cash, diluting the value of existing shares.

To be sure, opportunities still exist for income-seeking investors, says Judy Saryan, a vice president at Eaton Vance who co-manages six dividend-oriented funds.

She suggests investors look to strong companies in the consumer-staples, telecommunications and utilities sectors.

Even among financials, she says, real-estate investment trusts and insurance companies have been maintaining or growing their dividends.

“Companies recognize that if they’ve got a strong balance sheet, they’ve got a really good weapon to have in this environment,” Saryan says. “Companies are aware that by raising their dividend, they’re giving a really good signal about their confidence in their business.”

She points to McDonald’s (MCD), J.C. Penney (JCP) and Wal-Mart (WMT), which boosted their dividends in recent years. She also suggests looking to European companies, which have a stronger tradition of paying out dividends.