Citigroup Strategists: Despite Pending Recession, Dividends Should Hold Up

Worried about what the pending global economic recession might do to your solid dividend-paying stocks? Have no fear, they have been resilient during previous global earnings downturns, according to Citigroup.

While global dividends are up 6.7% since earnings peaked in late 2007, average earnings declines of 25% have historically been accompanied by average dividend gains of 2.4%.

Citigroup’s global equity strategy team said in a report:

Rising payout ratios have offset earnings declines, enabling dividends to hold up. A low payout ratio - 36% - at the start of the earnings downturn should support dividend resilience this cycle, even under worst case earnings scenarios.

A collapse in financials dividends is considered the greatest risk, while defensive sectors like consumer staples and financials are favored over cyclicals.

Citigroup told clients that global equities are attractive on a dividend basis, particularly against cash and bonds. So they think it is time to step back from the current financial turmoil and look closely at this important long-term driver of equity market returns and valuations. After all, dividends have made up 30% of the annualized total return from global equities since 1970, and “their importance increases dramatically during periods of equity market weakness.”

Comments

[william meesit:]

hi

2008 Oct 28 04:11 AM