Dividends Coming Back in a Big Way

Dividends, dividends...they are coming back, big time. Large companies raising dividends today include IBM and Coach, Humana also announced it was paying a dividend as well. So far this year, 140 companies have raised or initiated dividend. Another way to look at this is the dollar amount of the dividend increase; so far this year, the dollar increase is very close to the dollar increase for all of 2010, according to Standard and Poor's.


Strange movements: the dollar is down, but so are commodities, while commodity stocks are up. Commodity stocks are following industrials up on strong earnings reports; chemicals also had good reports.

This, despite a report out overnight by Morgan Stanley in Europe.

If you didn't see it, Morgan Stanley made a call to: 1) buy consumer staples, 2) reduce the overweight in commodity stocks. The thinking is that leading indicators are rolling over, monetary policy is turning restrictive, and inflation is rising.


I don't particularly agree that leading indicators are rolling over, but regardless: this is hardly a bold, dramatic call. It's easy to say, "Lighten up on commodities" with the dollar where it is, and especially now that we are quickly moving into a seasonal quiet period.

A more important reason for the call may be the end of QE2 (quantitative easing); indeed the authors acknowledged as much further down in the report, where they note that "commodity prices have been a key beneficiary of QE2."

Speaking of QE2: why is the bond market so strong? Doesn't the end of QE2 mean the government will not be buying bonds, so bond prices should go down? Some are arguing that the Fed will simply continue to buy bonds with the money from retiring mortgage backed securities they own; under this scenario there is no straight end to QE2.

My friend Rick Santelliat the CME noted there may be concern that the stock market may be quite worried by the end of QE2 and may not take the end very well.

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