Dividends Show Differences Between Financials

Isn’t the financial sector supposed to be in dire straits? Maybe they are, but the latest Market Insight publication from AIC Funds says 76% of their largest 25 financial stocks raised dividends in the past year, 20% had no change, and 4% had a decrease.

“Dividends are an important measure of financial strength. They’re an indication that a company is financially sound and is looking ahead with a positive view to the future,” notes the report. If so many are raising their dividends, are things all that bad – at least in Canada (where AIC Fund is based)?

“Investors have lumped all financials – both good and poor performers – together under the same category, and have generally stayed away,” adds the commentary. “During this time, it’s important to remember that each financial company is different and should be evaluated individually on its own merits.

“Solid core financials entering times of market or economic crisis often emerge stronger in the end, obtaining increased market share from weaker performers who fall by the wayside.” AIC Fund’s list of dividend-raising financials might then be a screen of sorts for the latter kind of companies, so let’s offer it here.

Dividends were raised at: Bank of New York Mellon Corp. (BK), Bank of Nova Scotia (BNS), HSBC Holdings (HBC), JPMorgan Chase & Co. (JPM), Lloyds TSB Group (LYG), National Bank of Canada, Royal Bank of Canada (RY), Toronto Dominion Bank (TD), American International Group (AIG), AGF Management Ltd., CNP/NPM, IGM Financial Inc., Invesco Limited (IVZ), Investor AB, Power Corporation of Canada, Great-West Lifeco Inc., Manulife Financial Corporation (MFC), Power Financial Corp., Sun Life Financial Inc. (SLF).

Those holding the line on dividends were: CI Financial (CIXUF.PK), Barclays PLC (BCS), Royal Bank of Scotland Group plc (RBS), Dundee Corporation, Merrill Lynch & Co. Inc. One company cut: The Wharf (Holdings) Limited.

Comments

[fxtrader07:]

dividends have been raised at ACAS, which I consider to be superior to any of the stocks mentioned in the article.
and looking at stocks like LEH and AIG it is pretty obvious that dividends were raised contrary to the companies' fundamental shape just to keep/attract investors.
Go figure.

2008 Aug 26 07:34 AM

[jimsep:]

If more banks paid out more dividends to their shareholders (why not, that's primarily what they are there for) they would be paying more attention to what they were doing with their money and less likely to do the stupid things they have been doing.

2008 Aug 26 01:39 PM

[Menachem Be...:]

Both HSBC and Lloyds TSB have committed to a progressive dividend policy and have adequate capital to maintain that policy. I applaud the write as the fundamental truth regarding any stock, that its worth increases regardless of market conditions if its dividend increases, is often ignored.
Great article and should be read by every investor.

2008 Aug 26 08:35 PM

[Leser:]

I agree with jimsep and Menachem Ben Yakov.
When purchasing a stock, look for the reasonable payout of -- what 25% or 50%, ballpark figure -- profits to the stockholder in the form of dividends (not so much buybacks, which I suspect may be to makeup for all the stock thrown at the executives of the company to cover their raiding the profit cookie jar.)
It's old fashioned fiscal responsibility at running the business the company says it's in. Buying other companies should be judiciously done, not in a greedy way to spend the shareholders' money, as if the shareholder doesn't know what to do with it. He or she should use the dividends to buy more of the same stock. If the company is that good, the shareholder probably would.
Of course, companies with high dividends and high debt--well the debt washes out the benefit of the current dividend, I would say.
Yes, if we went back to the traditional high dividends--even after a 15 (or 20% taxation in the future?), it would be one way to know the executives of the company are really working for us. What a novel thought.
Dividends, dividends, dividends. The proof is in the pudding.

2008 Aug 31 04:11 PM

[Menachem Be...:]

To Lesers' on the money comment I would add the following factual information-

Since 1927, dividends have
contributed over 44% of the total
return of the S&P 500 Index,
with pure capital appreciation
accounting for less than one
third of total return and if those same dividend
payments had been reinvested, dividends would
account for over two
thirds of total return over the
same time frame.


On Aug 31 04:11 PM Leser wrote:

> I agree with jimsep and Menachem Ben Yakov.
> When purchasing a stock, look for the reasonable payout of -- what
> 25% or 50%, ballpark figure -- profits to the stockholder in the
> form of dividends (not so much buybacks, which I suspect may be to
> makeup for all the stock thrown at the executives of the company
> to cover their raiding the profit cookie jar.)
> It's old fashioned fiscal responsibility at running the business
> the company says it's in. Buying other companies should be judiciously
> done, not in a greedy way to spend the shareholders' money, as if
> the shareholder doesn't know what to do with it. He or she should
> use the dividends to buy more of the same stock. If the company is
> that good, the shareholder probably would.
> Of course, companies with high dividends and high debt--well the
> debt washes out the benefit of the current dividend, I would say.
>
> Yes, if we went back to the traditional high dividends--even after
> a 15 (or 20% taxation in the future?), it would be one way to know
> the executives of the company are really working for us. What a
> novel thought.
> Dividends, dividends, dividends. The proof is in the pudding.<br/>
>

2008 Aug 31 05:19 PM

[tinman:]

AIG dividends should be regarded as return of capital

2008 Sep 15 03:49 PM