Dividends Up 8.8%, 2011 Estimated To Be Up 9%, But You're Still Down 18.5% from 2008

Posted by: Howard Silverblatt on December 21, 2010

The best way to think of dividend income is as your salary. The good news is that you received an 8.8% pay increase this year and next year looks like it could be a 9% increase. The bad news is that you are still making 18.5% less than you made in 2008, it won’t be until 2013 until you get back to 2008, and you need to make up the difference from somewhere, now.

Dividends had a great year, and I expect them to have a great 2011, and if all goes well (or at least jobs start to come back), 2012 should also be a good year. But that doesn’t make up for the two worst years in dividend history, and won’t get you back to what you received in 2008. Below a few highlights from a dividend report I just finished, with a link to the full report (with files specifically designed to be exported and used).

The bottom line is its going to take until 2013 to get back to 2008, and risk still exits.

dividends_20101221.doc

Key to dividend survival is the decline of the multi-billion dividend cut, in 2008-9 140 cuts cost investors $88.7B
Significant increase in positive dividend actions, with 255 increases YTD for 2010 compared to 157 in 2009; $21.0B in increases vs. $10.7B in ‘09
Dramatic decrease in negative dividend actions, with 4 increases YTD for 2010 compared to 78 in 2009; $0.4B in decreases vs. $48.0B in ‘09

Conditions are good for dividends - cash, earnings, cash-flow, low payouts, willingness of companies to prove they are back, investor appetite.
Therefore, the decision comes down to a commitment of resources from the Board of Directors to the shareholders. The problem, at this point, is that the dividend commitment is long-term, and the prospects for economic stability over the next year or two are not at a comfort level that encourages strong long-term commitment. So I believe we’re more likely to see smaller increases that correspond to actual improving conditions.

12 initiations or re-instatements in 2010, mirrors dividend growth of 2003 (21) after 2000-2 Bear market

For 2011 I don’t expect many decreases, and I estimate that two-thirds of the paying issues will increase their regular cash payments over 2010. Given the current uncertainty of the economy and the market, that statement, in and of itself, is a powerful endorsement of the upward trend in dividends.

As the dividend recovery has grown, the forward indicated dividend rate has reversed its decline and started the long climb back. The current $23.60 indicated rate is 8.8% above the close of 2009, and is a start down the recovery trail. However, it remains 18.5% less than the June 2008 high rate of $28.96, and translates into US$ 48.7 billion less annually. The best way to think of dividend income is as your salary. The good news is that you received an 8.8% pay increase this year and next year looks like it could be a 9% increase. The bad news is that you are still making 18.5% less than you made in 2008, it won’t be until 2013 until you get back to 2008, and you need to make up the difference from somewhere, now.
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In the short run I believe the two-year extension of the qualified 15% dividend tax rate reduces the immediate pressure to pay one-time extra dividends or to move up January payments to December. Longer term, the 15% lower tax rate becomes more attractive to investors, who currently have few alternatives. Boards which would have been more hesitant to issue and increase fully taxed dividends, and might have pushed for more buybacks, will now have a higher comfort level of the net return to shareholders, and one less reason not to pay dividends. The two-year extension for qualified dividends to be taxed at 15% is estimated to add an additional US$ 74.5 billion into the hands of individual investors, and bring the ten year tax savings to US$ 348.4 billion (which is $348 not collected by the government). The savings are for dividends paid to individuals in taxable accounts.

Reader Comments

chuck

December 29, 2010 12:09 PM

I think that it is wrong to compare dividends to salry, when in reality dividends are personal business income. in that case, being down 18% in one of the worst recessions in history is actually pretty good.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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