Dividend Growth Soars 22.8% in Q4

Old_Skeet

In the below linked article one of the things that it brings to light is as companies increase their dividends then the dividend yield effectively increases on the amount invested. This is something that I have been broadcasting for sometime as one of the reasons I favor good dividend paying equities over fixed income bonds, although I own some of these too.

I hope you enjoy the read.

http://www.crossingwallstreet.com/archives/2013/01/dividend-growth-soars-22-8-in-q4.html

Good Investing,
Skeeter

catch22

Hi Skeeter,
Wondering if this was a one time event with the special payouts for 2012, and will affect 2013 payouts?
Note: I didn't read the story yet.
Catch

scott

I think even with higher taxes, dividend growth investing - solid, established companies that can (and have a history of) raising the dividend over time - is gaining in popularity, for reasons such as what Skeeter discusses up above. Not gaining in popularity like fixed income, but gaining nonetheless, and there's more and more articles devoted to it on places like Seekingalpha. I've become a fan of it, although I think - like anything else - it can't (or at least shouldn't) be 100% of one's portfolio.

Ted

Reply to @catch22: If had read the article you would know that even thought many companies paid special dividends the growth was mainly due to higher profits. I suggest that in the future you pay the poster the respect of reading the link before engaging your keyboard. I am attaching a link so you can learn something about dividends. They are the 'mother's milk of investing.'

Dividends: A Timeless Component Of Equity Return
http://ngam.natixis.com/docs/306/331/WP64-0412 LS Dividends White paper_TEMP.pdf

catch22

Morning Ted,
No disrespect to Skeeter; as I asked a question as regards to 2013 actions from the 2012 special dividends.
Do you think the special 2012 payouts, regardless of earnings in 2013, will affect 2013 dividend payments.
I am well aware of dividends, thank you.
Take care,
Catch

Mark

Is there more to this article? All I got was some twitter post.

msf

Reply to @catch22:
Special dividends are hardly unheard of. See, e.g. Microsoft, 2004, or as mentioned in the linked article, Limited Brands (LTD), Franklin Resources (Franklin Templeton - BEN), and Garmin (GRMN).

I see three possibilities about where money for "special" dividends can come from; each raises questions about the management of the companies making those payments:

(1) The companies have been sitting on cash and been unable or unwilling to put that cash to work. This is often a sign that one should be investing elsewhere - not that the company will not continue to be a cash cow (to address your question about 2013 dividends), but rather that the company will not grow, or at least not grow as rapidly as its industry. Again, see the article I linked to.

(2) The "special" dividends are strictly a matter of timing (accelerating a payment from early 2013 to late 2012). 99% (or 98% if one considers the Medicare surtax) of households will see no change in tax rates on dividends. How do the 99 (or 98) percenters feel about seeing companies impose early (2012) taxes on them to benefit the 1 (2) percenters?

(3) The companies are dipping into money they would otherwise be reinvesting to make the special dividend. This again hurts the companies as it holds back their growth - they either invest less in their business, or they borrow (at a cost) to maintain the same level of investment.

Hard to see a positive in these payments, but that doesn't mean that 2013 dividends would be affected.

scott

Reply to @catch22: 2012 special dividends may effect payout %'s for some companies, but I think the whole thing is more the idea of more people going for well-established companies with a history of growing the dividends over longer periods. The Coca-Cola's, J & J's, etc of the world. In the higher risk category, something like Kinder Morgan (which I own.)

People talk about money going into equities once bonds reverse, and:

1. I think a lot of that money isn't coming back into the stock market.

2. I think what money does come into the market from a bond reversal, a fair amount of it - I think - will be directed (I believe) towards quality and dividends. If people aren't going to get yield in bonds, they'll look towards the familiar that yields - Coca-cola, etc.

Again, I don't think all fixed income should be sold, but even those in retirement should have some allocation to equities. However much depends on their situation.

Ted

S&P 500 Annual Dividend Yield: 1871-2012.
10 Year Treasury Yield: 1871-2012
Regards,
Ted
http://www.multpl.com/s-p-500-dividend-yield/table
http://www.multpl.com/interest-rate/table

Old_Skeet

Hi Catch 22,

I am sorry about the delay in getting back to you concerning your question about dividends. I was out of pocket and away from a computer.

I feel many responded and some even provided additional information that is perhaps helpful. Since the question was asked to me I will give you my take as to why I favor good dividend paying stocks and mutual funds of same over bonds in general. As the article pointed out for those investors that purchased the S&P 500 Index at its March 2009 low they would now be receiving an effective yield on their investment of 4.6%, on the amount they invested. Plus, there would have been some capital appreciation on the investment and many, myself included, are close to doubbling, if not doubbling, their money.

When you purchase a stock at let us say $10.00 per share and the company is paying a dividend at the time of purchase of $0.40 per share then that equates to a yield of 4%. Now as the company’s earnings grow and the company increases its dividend so does the effective yield increase on the amount invested. So with a 5% increase in the dividend, one is now receiving $0.42 per share and the effective yield on amount invested has now increased to 4.2%. Over time this amplification can become significant as the article points out.

In addition, I have found equity stock valuations grow through the years as a company grows earnings and profits along with raising the dividends paid to share holders. To me, this allows for inflation creap.

I know you are a bond man and that is ok by me. I think you have done an excellent job of managing your bond portfolio and it is certainly to be commended. But, just know my preference centers around stocks and not bonds for the reasons I have stated above. I’d rather get my income generation form the equity revenue side of a company rather then the debt service side although I do own some bond funds in my portfolio because I believe in diversification. No doubt, the 4Q dividend distribution had some early money in it due to the uncertainity associated with the fisical cliff.

Thanks for the question. I hope my answer has been helpful.

Good Investing,
Skeeter

scott

Reply to @Skeeter: "I’d rather get my income generation form the equity revenue side of a company rather then the debt service side although I do own some bond funds in my portfolio because I believe in diversification."

Well - and this is not against catch - if one goes all one way (whether it be bonds or equities) and then plans to move to some degree the other way at some point, that timing is difficult and increasingly so in a market like this. If someone is all bonds and is okay with staying there (retired) and knows the concerns with being all fixed income and accepts them, fine, but moving from asset class to asset class in today's markets is - I think - an increasingly tiresome task. Additionally - and I understand this well - people have to feel comfortable with the risks that they are taking. However, I agree with skeeter that diversification is a positive (and how much diversification is, again, going to differ for everyone and everyone's risk tolerance/situation.)