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

Citigroup, which as early as the start of the year was the nation's third-biggest dividend payer, Monday cut its quarterly dividend 94 percent to 1 cent a share as a condition of the federal bailout.

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, according to Standard & Poor's.

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

And it's getting worse. Dividend payments in the fourth quarter are expected to be down 10 percent from the fourth quarter of 2007, the worst quarterly decline since 1958. Dividends are expected to fall again in 2009.

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

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

• The financial crisis has hit dividends hard since banks and brokerages 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 difference. Outside of financials, companies continue to make their dividend payments and even increase them. Technology has been especially positive, said 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?" said Howard Silverblatt of S&P.

• Cash is treasured when credit is tight. Non-financial companies in the S&P 500 are hoarding $648 billion, which is up from last year near record levels, Silverblatt said. With credit markets strained, companies are careful to not give up cash and risk needing to raise some later.

Yet stock prices are falling even faster than dividends, which is why dividend payments are now 3.3 percent of the price level of the S&P 500, the highest since 1990. Another thing to keep in mind: Stocks with the highest dividends relative to stock prices outperform those with the lowest by 20.3 percent on average in volatile markets, Belski said. "The dividend story is not dead," he said.