Trader Talk

Pisani: More Dividend Increases Coming

Dividends: the tide has turned; more increases are coming.

February is traditionally the month with the largest number of dividend increases, and it did not disappoint.

Forty-seven companies increased their dividend last month (nearly 10 percent of the S&P 500). That is the best in two years and about twice the average of the last seven years.

They have a long way to go. Here's the total dividend payout for the S&P 500 recently, in billions:

2008: $248

2009: $196

2010 (est.) $206

Source: S&P

Simply put, 2009 was the year of the big dividend cut. Beginning in the first quarter, companies started decreasing dividends — drastically. By the end of the year, dividend payouts were 20 percent less than 2008.

Most of this decline came from financials. They historically accounted for about 30 percent of dividend payouts, but in 2009 big names cut their dividends to $0.01 per quarter (Bank of America , Citigroup ) or $0.05 (Wells Fargo , JPMorgan Chase ). Today, financials are a measly 9 percent of total dividend payouts.

That should improve this year. Most financial traders are picking JP Morgan as the company most likely to start the dividend raising, but most feel it will not happen until the end of the second quarter, or even the third quarter. The problem: uncertainty over capital requirments (yes, another area where regulation risk is very real).

But other non-financial companies have started the ball rolling. Today, Applied Materials raised their dividend 17 percent. For the first quarter of this year, Standard & Poor's is estimating the S&P 500 will pay out $48 billion. That is still less than the $52 billion paid out in Q1 2009, but the trend is clearly improving.

Another likely candidate: our parent company, General Electric . They cut their dividend from $1.24 to $0.40 in February 2009.

And there's plenty of big names that pay NOTHING: the four major ones are Google, Cisco, Apple, and Berkshire Hathaway. If each of these companies paid a ONE PERCENT DIVIDEND, that would be an additional $6.2 billion in dividends, according to S&P.

Dividends matter--and they will matter more. From 1926 to the present, dividends accounted for 42 percent of the total returns of the S&P 500. 42 percent. They have been less important in the last twenty years: only 28 percent of the total returns were due to dividends.

But raising dividends may be one way to attract millions of investors who pulled out of the equity markets in 2008 — and have not returned.

CNBC Data Pages:



Questions?  Comments?