Most of the hot stocks have cooled, though a few remaining ones still have the potential to burn the unsuspecting buyer. Meanwhile, investors have rediscovered the dividend. Through November 30, dividend payers in the S&P 500 have posted a total return of 14.4%, vs. 7.8% for non-payers.
Over the same time period, 247 stocks in the index increased their dividends, vs. 222 in the first 11 months of 2003. Using the larger universe of about 7,000 companies that report dividend actions to Standard & Poor's, through November there were 1,578 dividend increases this year, vs. 1,494 in 2003's first 11 months.
With taxes on dividends now below the ordinary income tax rate, we expect the trend of higher payments by U.S. corporations to their shareholders will continue. Many of these boosts come in the early part of the year, after companies have closed their books on the previous 12 months. In eight of the past 10 years, the greatest number of monthly dividend increases were announced in January. On average, that month has seen 39% more dividend increases than in a typical month since 1995. In the two years when January was not leading the pack on increases, February was.
The market's current yield of 1.7% is better than the average of 1.2% seen in 1999 and 2000, but it remains far below the 4.1% yield the S&P 500 has averaged since 1928. Currently 75% of the stocks in the index pay dividends. That's down from 94% as recently as 1980.
If capital gains remain muted in the years ahead, perhaps the number of companies paying dividends and the market's yield will edge closer to historical norms. Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook