We are already one month after the first Quarter (ending March 30th). This is usually when the financial results come in and the sector reviews are published. We have been receiving great news from the stock markets since mid April. Companies such as DuPont (DD), MacDonald’s (MCD), Celestica (CLS), Xerox (XRX), Apple (AAPL), General Electric (GE) (and more) are reporting increased revenues and profits. On the other hand, companies such as Morgan Stanley (MS), Kimberly-Clark (KMB), RadioShack (RSH), and Nintendo (OTCPK:NTDOF) have unveiled disappointing results. But what is happening in the Dividend world? Are dividend stocks increasing their dividend payouts again? Let’s take a look at the dividend by sector quarterly review:
Dividend Review Q1 2010 vs Q1 2011
There is definitely a wind of optimism among the dividend payers in recent years. I have already mentioned that I think that the market in 2011 is going to be bullish. One of my reasons was due to the important level of liquidity held in public companies. Well, we can now see that some of them have decided what to do with their excess money: raise their dividend!
In fact, there are more than 25% of companies which raised their dividend in Q1 2011 compared to a little bit less than 20% in 2010. The dividend cuts were exceptional with less than 2% cutting their dividend for the first quarter of the year. Communications (33%), Basic Materials (33%) and Technology (30%) stocks are the leaders in dividend increases at the moment. Here are some important dividend increases in these sectors:
Media and cable industries have been driven by optimistic job reports published in March. More jobs = increase in consumer confidence = more money spent on leisure. We are also looking at a more active mergers & acquisitions in the telecom industry with the two giant AT&T (T) and Verizon (VZ) battling for the mobile phone market share.
Omnicom Group (OMC): 25% dividend increase with a current yield of 2.08%
Time Warner Cable (TWC): 20% dividend increase with a current yield of 2.66%
Time Warner Inc (TWX): 10% dividend increase with a current yield of 2.65%
We can obviously expect smaller copper and gold producers to show interesting results as both prices of their underlying assets are rising. There are currently many gold miners increasing their dividends since 2010 as they were betting on a strong price for gold in 2011. They are right so far.
International Paper Co (IP): 50% dividend increase with a current yield of 3.65%
Freeport-McMoRan Copper & Gold (FCX): 66% dividend increase with a current yield of 1.89%
Air Products & Chemicals Inc (APD): 18% dividend increase with a current yield of 2.57%
Here again, mergers & acquisitions are at the center of attention in the technology world. Companies such as Yahoo, Google and Intel are contemplating possible financial moves. In the meantime, Cisco paid its first dividend in 2011 and Hewlett Packard and Oracle increased their dividend by 50% and 20% respectively.
Intel (INTC): 15% dividend increase with a current yield of 3.67%
Linear Technology (LLTC): 4.35% dividend increase with a current yield of 2.96%
Pitney Bowes (PBI): a small 1.37% dividend increase but with a high current yield of 5.93%
What Else Happened in the Dividend Investing World?
The biggest dividend sector is definitely Utilities. There were no strangers to the dividend raise and mergers & acquisitions wind on the overall stock market. Some companies are hiking their dividend payouts while pushing their dividend payout ratios to 50-55% (while most of them try to keep it around 45-50%). This shows a strong belief that revenues will grow over time and that there will be some growth (coupled with dividend raises) to come in 2011.
Another interesting sub-sector is definitely American REITs. I’ve already covered the top Canadian Reits and I should definitely consider doing the same thing with the American REITs. As a result of the mortgage crisis which started in 2007-2008, many families have developed an aversion to home ownership. They would rather move into apartments, where residential REITs benefit from an increase in the occupancy rates. However, while their conditions have improved, their dividend yields remain way lower than Canadian REITs….
What is yet to come in 2011 in regards to Dividends
As I have mentioned before, I am expecting 2 things for the upcoming months:
#1 Increase in dividend payouts
#2 Increase in mergers & acquisitions
Since there is still a lot of cash sitting in companies’ bank accounts, one of these outcomes will inevitably happen. On top of that, we should also benefit from share buyback programs.