Cash Management

Dividends Surge in Popularity

Many companies with extra cash are giving some of it to their shareholders.
Stephen TaubJanuary 5, 2005

Companies announced 1,745 dividend increases in 2004, up 7.1 percent from 2003, according to Standard & Poor’s. Last year’s figure, the highest since 1998, was also in line with the 10-year average of 1,759.

“Full-year dividend increases show a greater willingness on the part of U.S. corporations to reward their shareholders,” wrote Joseph Lisanti, editor-in-chief of Standard & Poor’s weekly newsletter, The Outlook. “With corporations sitting on billions of dollars in cash, and dividends taxed at low rates, Standard & Poor’s expects even more increases in 2005.”

In 2003, President Bush lowered the tax rate on dividends to 15 percent, the same rate as for long-term capital gains. And as we noted yesterday, 2004 will probably wind up as the best year for operating earnings since 1988.

During the 1990s, dividend-paying stocks were often regarded as far too conservative, especially when compared with high-flying tech and Internet stocks that didn’t pay dividends. Many companies avoided paying dividends or kept their payout ratios very low. Indeed, according to The New York Times, despite the resurgence in dividends, S&P 500 companies paid out just 34 percent of reported profits in dividends last year, far below the historical average of 54 percent.

December saw 167 dividend increases, compared with 136 a year earlier and an average of 149 over the past decade, according to S&P. On the other hand, only 172 extra dividends were reported last month, compared with 212 a year earlier — the greatest total for the final month of the year since 1989.

The number of negative dividend actions fell to a record low of just 64, added the Times; 35 were announcements of dividend cuts and 29 were decisions to omit dividends entirely.

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