Dividend increases are back on the rise, as companies have more cash on the their balance sheets and seek to reward shareholders for taking their capital risk.
This week, for example, tech giant IBM announced that it would boost its quarterly dividend by 18% to 65 cents a share, marking the fifteenth consecutive year that the company increased its payout. Other corporations such as Exxon Mobil, Wal-Mart, Pepsi, Coca-Cola, AT&T and Procter & Gamble have also joined the list.
Could shareholders see this trend continue? According to Daniel Peris, Vice President at Federated Investors and manager of the $1.0 billion Federated Strategic Value Fund, to neglect stock dividends is to pass up a meaty source of current income. He believes we are witnessing a fundamental change in prevailing investment motives, where the stocks that do well are going to be the ones that have and distribute excess profits.
Peris recommends that investors look not just for price appreciation, but consider the dividend as half of the total return of a stock. He points out that dividends have accounted for 40-50% of the stock market’s (S&P) total return over the past century. He believes that modern investing has developed a gambler’s fascination with price appreciation and that correct long-term stock investing is meant to factor in dividends as a major component of total return.
Indeed, companies that increased dividends this year, have an average yield of 2.75 percent, about 100 basis points higher than the current yield for all the stocks in the S&P 500. Additionally, these stocks have seen an average increase of 8 percent year-to-date, in par with the overall index performance.
So far in 2010, over 88 companies in the S&P 500 increased dividend payments, compared to 74 such actions in the first four months of 2009 and 124 in 2008. At the end of both years, a total of 152 and 218 divined increases took place.
Among the major S&P sectors, the largest share of increases derived from the consumer discretionary, consumer staples, industrials and utilities sectors. The table below depicts some of the companies that announced dividend hikes in the past four months.