Corporate America is fighting to conserve cash in the economic and corporate-profits recession. Not surprisingly, investors overall have been focusing on dividend cuts in 2009.
Yet 70 companies in the Standard & Poor’s 500-stock index have either started to pay dividends or boosted them so far in 2009. That exceeds the number of companies (59) that have trimmed or eliminated dividends.
To be sure, dividend increases usually outnumber cuts in the S&P 500 by a wide margin. In 2007, there were only 12 decreases to 298 increases. Even last year—a terrible one by any measure, particularly in the dividend-rich financial sector—there were 241 increases and just 62 cuts. The dollar impact of the 2009 cuts has been much greater too, accounting for $45.1 billion of lost income, already setting a new record for a full year, vs. the $5.1 billion from the 70 new or raised payouts.
The ability to maintain and even hike dividends is undeniably a sign of business and financial strength, particularly in the current economic environment. And dividends are a concrete gauge of management’s confidence in the future because raising a company's payout is a deliberate, thought-out decision, far from automatic.
Last week marked the busiest week for dividend increases in 2009 as several blue-chip companies, including IBM, Costco (COST) and Exxon Mobil (XOM), raised their payouts. Other blue chips that have hiked dividends in 2009 include Johnson & Johnson (JNJ), Abbott Labs (ABT), Southern Co. (SO), Coca-Cola (KO), Wal-Mart (WMT), Procter & Gamble (PG), General Dynamics (GD), Kellogg (K), Avon Products (AVP) and Pitney Bowes (PBI).
Over time, buying shares of solid dividend-paying companies has consistently outperformed the broad stock market. Since the end of 1979, investing in dividend-paying stocks in the S&P 500 has returned 11.6 percent a year on average, vs.10.5 percent for the overall index, and with less risk and volatility.
