Industries most likely to hike payouts are health care, industrials, consumer discretionary and tech. Financials have the most excess cash, but they are unlikely to restore or raise dividends any time soon, given regulatory uncertainty.
Minus the financials, gross payouts for the S&P 500 rose by 56 percent in the fourth versus second quarter, and another $150 billion, half of last year's retained cash, will be spent on payouts and capital. Buybacks should increase by $100 billion this year.
"Ex-financials, basically 10 percent of the enterprise value of the S and P 500 is sitting in cash. Historically it's closer to 6 percent," said Deutsche Bank Chief U.S. strategist Binky Chadha, in a recent interview. Including the financials, the level is about 20 percent.
Chadha said corporations built up cash as they fired workers and pared costs and inventories during the recession. As a result, their cash flow is now at very high levels. "It's a typical reaction in a typical recession. They basically want to hold onto their cash because there's lot of uncertainty and lots of concern. This time we have a financial crisis combined with a recession so you have an unusually high build up," he said.
Chadha said companies will also boost spending on cap ex. "Spending on cap ex is good for the economic recovery. It's essentially moving us onto the stage of the recovery that is more self-sustaining," he said. Deutsche Bank expects firms to raise cap ex spending by about 10 percent this year, still constrained due to worries about the recovery.
Chadha has said he has a target of 1250 on the S&P 500 by the time the April jobs report is released in early May. "Sentiment remains disbelieving. Disbelieving about the recovery. Disbelieving about earnings," he said. He said the market will need to see two payroll reports showing job growth before it accepts the trend. Deutsche Bank expects Friday's March jobs report to show non farm payrolls of 350,000.
He also does not expect the economy to double dip. "Washington is a big factor here. This is an involuntary recovery. It's not based on optimism. Because it's not based on sentiment, it's actually insulated from sentiment," he said.
"I'm putting my money on the idea that the overshoot to the downside is too large," he said.
Chadha expects the market to continue to move higher, and he sees the S&P finishing the year at 1325. "Ex the financials, the high grade credit market is on the other side of the credit crisis. We had a credit crisis and credit spreads recovered completely, and in equities, we believe it's going to take a while," he said.
Deutsche Bank created a list of 50 stocks with the biggest potential to raise dividends. Some companies on that list are: DuPont, Caterpillar, Qualcomm, First Solar, Ford, Forest Labs, Pulte Homes, Rowan Cos, Estee Lauder, Tyson Foods, Sara Lee, Humana, EBay, El Paso, Southwest Airlines, Masco, Bemis Co, Lowes Crop, Automatic Data Processing, Nicor, MeadWestvaco, and Eastman Chemical.