Are Investors Turning Away From Dividends?

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Investors love dividends, and they should in good times and in bad times.  What is interesting is that dividend investors have actually lagged so far in 2012 as far as the S&P 500 Index is concerned.  We have highlighted this in utilities getting back to bargain levels (due to poor performance) and also in whether or not investors should chase apartment-REITs for dividends in apartment demographic trends.

First Trust showed some interesting data on the S&P dividend payers versus the non-payers.  The 396 dividend-payers in the S&P 500 on an equal-weighting basis posted a total return of 3.84% in February versus a gain of 5.55% for the 104 non-payers.

On a year-to-date basis, the numbers show that dividend payers were up 8.92% versus 14.19% for the non-payers.

The review over the trailing 12-month period showed that dividend paying stocks were up 4.08% versus a loss of 1.22% for the non-payers.  After all, the top performing sector in the S&P 500 last year was the utilities sector.

First Trust also noted that the number of dividend increases so far in 2012 were 68, up from 55 a year ago; and there were 3 dividend cuts fo far this year versus zero a year ago. Only one new S&P 500 company initiated a dividend against 6 new companies initiating dividends in the same period of 2011.

There are a couple of issues at work here, and one is the Obama dividend tax strategy on high income earners.  To think that this will not create a move out of some dividend issues is nothing less than silly.  Still, the election is eight months out and a lot can happen between now and then.  The end of the Bush tax rates will likely have an impact as well.

Investors have warmed up to a lower chance of a recession ahead and that the U.S. will escape the undertow of Europe.  If the economy is going to expand, investors may look for growth over income.  Ditto if bond yields ever start to offer investors a higher yield.

If you belive that dividends will still be relevant in the months and years ahead, there is also the recent move to launch two new emerging market dividend ETFs.

JON C. OGG

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