New Year Paying Dividends
So far, 2010 is looking like an encouraging year for dividend payments.
In January, 96 companies raised or initiated dividends, the highest number since October 2008. In contrast, just 17 companies cut or omitted dividends, the lowest number since October 2007. And February promises to deliver even more increases.
February is typically a big month for dividends. In each of the last five years, more companies raised their payouts in February than in any other month. The first seven trading days of February featured 39 dividend hikes.
Monitored List stocks that have raised their dividends this month include Colgate-Palmolive ($80; CL), News Corp. ($13; NWSa), L-3 Communications ($86; LLL), Sigma-Aldrich ($48; SIAL), and United Technologies ($67; UTX). Ross Stores ($46; ROST) delivered especially positive news. The retailer raised its quarterly dividend 45% and announced plans to buy back $750 million in stock (13% of the company’s market value) over the next two years.
Companies typically raise dividends when they are generating strong profits and cash flows, or when they feel optimistic they will do so in the future. Not surprisingly, the end of 2008 and the first half of 2009 saw a substantial decline in dividend hikes, coupled with a rise in cuts. In 2009, U.S.-traded companies announced 778 dividend hikes or initiations, versus 804 cuts or omissions. In contrast, 2007 saw 1,885 positive announcements versus just 110 negative announcements.
The start of 2010 bodes well for dividend investors, suggesting that some companies are now more sanquine about the future. However, nearly $90 billion in annual dividends were lost in the last two years, and it could take several more years before the total value of dividends returns to levels seen two years ago.