VideoSuddenly dividends are hot.
Thanks mostly to President Bush's cut of the top tax rate on dividends to 15 percent, a growing number of companies, especially large financial institutions, are increasing their payouts by huge percentages. And there is no reason to believe this trend will abate anytime soon.
For example, earlier this week Citigroup Inc. lifted its quarterly payout by 75 percent, to 35 cents per share.
Wachovia Corp. management said the company's board of directors approved a 21 percent increase in the quarterly dividend. This also represents a 46 percent increase since the second quarter of 2002.
Thrift giant Washington Mutual raised its dividend by 33 percent, Bank One lifted its payout by 19 percent, and the board at Pacific Crest Capital Inc., a regional bank with a $100 million market cap, has approved a 10 cents per share common share cash dividend for the third quarter of 2003.
That's a 67 percent increase from the 6 cents paid in the second quarter of 2003, and double the 5 cents per common share paid in the third quarter of 2002.
Investment banker Jefferies Group Inc., meanwhile, more than tripled its payout to 8 cents per share on a postsplit basis, up from 2.5 cents per share.
And several weeks ago, Bank of America Corp. hiked its payout by 25 percent, while Goldman Sachs Group Inc. doubled its dividend to 25 cents per share.
These huge payouts are not just being favored by financial companies. Even tech companies, which until recently eschewed dividends altogether and even opposed the tax-rate reduction, are getting in on the action.
For example, management at Qualcomm Inc. said earlier this week the company's board has increased its quarterly dividend by 40 percent to 7 cents per share. Bear in mind that Qualcomm just declared its first-ever dividend of 5 cents per share in February, and declared another nickel dividend in May.
"As a result of our very strong cash position and the recent change in the U.S. tax law making the distribution of dividends more efficient, we are pleased to increase the cash payout to shareholders," Qualcomm's chairman and chief executive Irwin Jacobs said in a statement, echoing the explanations made by the top executives of the other companies that have aggressively lifted their dividends.
Departing Citigroup chairman Sandy Weill said in a statement that the recent change in the tax law "levels the playing field between dividends and share repurchases as a means to return capital to shareholders. This substantial increase in our dividend will be part of our effort to reallocate capital to dividends and reduce share repurchases."
So far this year, 124 issues in the S&P 500 have raised their dividends, compared with 104 increases last year, Howard Silverblatt, quantitative analyst at Standard & Poor's, told wire services. Of all companies that S&P tracks, 807 increased or resumed paying dividends in the first half of 2003.
What's more, the number of companies in the S&P 500 index that pay dividends has actually risen by 5, from 351, finally reversing a two-decade trend,
For example, back in 1983, 454 of the 500 issues paid a dividend. By 2000, when investors were more interested in looking for dot-coms that would double every week, the number of dividend-paying issues in the widely followed index stood at just 372.
Still, there is a lot more room for growth in the payout. After dropping to a low of 30 percent at the height of the bull market, the payout has inched up to 35 percent. But this is way down from the historic average of around 50 percent.
Currently the average yield for the entire S&P 500 is 1.28 percent. However, among the 356 dividend-paying stocks in the group of 500, the yield is 1.79 percent. This compares with a 1.51 percent rate on a one-year CD and 1.8 percent on a two-year CD.
Interestingly, investors have yet to embrace the dividend-paying stocks. The 144 nondividend payers in the S&P 500 index were recently up around 35 percent so far this year, compared with just around 13 percent for stocks that pay dividends.
CEOs More Upbeat
Another group of chief executive officers is signaling that they are becoming more confident about the economy's future.
In its most recent quarterly survey measuring sentiment for the next six months, 69 percent of CEOs in the Business Roundtable expect their companies' sales to increase in the next six months, compared with 56 percent in the April survey. Also, 29 percent expect sales to remain flat in the next six months, compared with 30 percent in April.
"This survey shows that CEOs believe that the economy is gaining its footing," said Philip M. Condit, chairman of the Business Roundtable and chairman and CEO of The Boeing Co.
In addition, 16 percent of CEOs expect employment growth in the next six months, compared with 9 percent in the April survey. Also 42 percent expect their companies' employment to drop in the next six months, compared with 45 percent in April; and 43 percent expect it to remain the same, compared with 46 percent in April.
As CFO.com reported last week, a survey conducted by The Conference Board also indicated that CEO confidence in the U.S. economy is picking up.
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