More Proof That Dividends Will Keep Growing

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There is good news for dividend and income investors. We saw enough dividend hikes that we knew there was some mathematical gain in hard dollar terms, but now we have some formal reporting on the matter. A report from S&P Dow Jones Indices shows that net dividend increases were $14.5 billion during the first quarter of 2013 for U.S. stocks alone.

S&P excluded special dividends and extra one-time dividend payments to avoid the skewed data that would have been seen due to the rush to pay higher dividends before a tax increase was imposed.

The first quarter of 2013 brought 944 dividend increases in the indexes measured. Investors can translate this to a gain of 39.4% over the 677 dividend increases reported in the first quarter of 2012.

Actual cash payments rose by 12%, and the forward indicated dividend rate reached a new all-time high. Another metric shown was higher income payout rates, and this shows much more room for improvement. The historic average was put at 52%, but the payout average in the first quarter remained near the lows at 36%. S&P went on to predict that 2013 easily will surpass the 2012 record dividend payments. Dividend payers in the large-cap S&P 500 reached 81.2%, the highest level going back to 1999.

One word of caution though, or at least an observation based around valuation: The S&P dividend report indicates that the weighted dividend yield was 2.61%. This is down from 2.80% at he end of 2012 because share prices have risen so much. Appreciation of more than 10% in both the DJIA and the S&P 500 was more than 10%, so that ate up much of the dividend hikes that are kicking in. The good news is that the 2.61% of the first quarter in 2013 did still top the average 2.58% yield at the end of the first quarter of 2012.

S&P’s Howard Silverblatt confirmed that appreciation was the reason for the lower sequential payouts. He said:

Dividend yields remain relatively attractive compared to other instruments such as corporate bonds, treasuries, and bank CDs, especially considering the new ‘permanent’ tax rate, which, while higher than last year, maintains preferential treatment for dividends. … The dividend cycle is solidly back on the upward track, with both investors and companies viewing them positively.

Silverblatt also sees positive indicators ahead for dividends coming from earnings coverage and high cash levels.

24/7 Wall St. would make a few notes that support and also show some of the other side of the coin that S&P brings up in dividends. First off, we have shown that we expect four DJIA components to raise their payouts just this month alone. We also have seen where short sellers may have finally smartened up when it comes to our list of the best high-paying dividend stocks. Another report by Moody’s from back in March shows how much cash is piling up on corporate balance sheets.

More data is out for decreases, and also for the trailing 12 months, when analyzing some 10,000 U.S. traded names. S&P showed that 139 companies actually did decrease their dividends in the first quarter of 2013, versus 35 companies in the first quarter of 2012. For the 12 months ending March 2013, there were 3,154 positive dividend events, compared to 2,120 such events in the prior 12 months, with 389 negative events in 2013, compared to 119 in the prior 12-month period.

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