As a result of the financial crisis, 2009 was the worst year for dividends in more than 50 years, with more companies cutting dividends – led by the hard hit financial sector – and fewer companies increasing them than any year since 1955, when Standard and Poors began tracking such data on 7,000 publicly owned companies.
Dividends paid on the S&P 500 Index fell 21% last year to $22.41 per share from $28.38 the previous year. This translates to a reduction of $51.6 billion in dividend payments. Declines are not unusual in recessions, but this was the largest drop since 1938.
Additionally, in last year’s dramatic market rebound, dividend paying stocks in the S&P 500 rose 26% on average, while non paying stocks rose about 65%. This is not surprising because the recover was led by cyclical, growth-oriented stocks, while stocks that are more defensive such as those in the consumer, healthcare and financial sectors could not keep pace.
Many analysts point to several factors which lead us to believe that dividend payouts should be on the rise in the near term.
· Strong balance sheets. After cutting spending the past two years, much of corporate America is flush with cash.
· Less volatility. After a decade that began and ended with two of the worst bear markets ever, investors may begin to favor companies with strong records of paying dividends because such stocks often provided a cushion during turbulent times.
· Steady cash flow. Despite occasional setbacks, many companies that pay dividends have steadily increased them over time, providing a growing level of income that has maintained its purchasing power.
