Dividend Slump Ending

Companies are using the big rise in profits for dividends. That’s good news for shareholders but maybe not so good news for the unemployed. If companies felt they had a good use for those funds, they’d retain them and maybe hire someone or buy a piece of equipment. Instead they are paying out dividends to shareholders:

April 28 (Bloomberg) — The fastest profit growth in 16 years means no companies in the Standard & Poor’s 500 Index are likely to lower their dividends this quarter, the first time that’s happened since 2004.

Of 245 companies in the index yet to announce payouts, 218 will probably keep their level and 27 may increase, according to forecasts based on data compiled by Bloomberg. The projections come from criteria such as options prices, comparisons with competitors and statements from management. S&P 500 dividends were slashed by a record $52 billion in 2009, S&P data show.

“Dividends show what companies are really saying, how they feel about the economy and their prospects,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “When no companies are cutting, that is a signal that the economy is doing well, and it certainly helps the stock market.”

Earnings in the S&P 500 rose 176 percent in the fourth quarter and probably climbed 44 percent in the first three months of 2010, giving companies a record stockpile of cash, estimates compiled by Bloomberg show. That helped spur Starbucks Corp., the world’s largest chain of coffee shops, to offer its first-ever dividend, while Safeway Inc., Exxon Mobil Corp. and Chevron Corp. may boost theirs, the data show.

International Business Machines Corp., the world’s biggest computer-services provider, increased its payout by 18 percent yesterday, more than forecast by Bloomberg. IBM is based in Armonk, New York.

Not Since 2004

The last time all dividend-paying companies in the S&P 500 maintained or increased their rates was the second quarter of 2004, S&P data show. That was during the first half of the rally between 2002 and 2007 that drove the index up 101 percent.


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