Dividend party just getting started on Wall Street
While investors may have a hard time capturing
the 30 percent stock market gains from 2013, the dividend train is
likely to keep rolling along.
The percentage of companies
expected to reward shareholders with dividends should hit a 17-year high
in 2014, according to an estimate from Markit. Those in the S&P 500 are projected to pay $352 billion in dividends, after doling out $311.8 billion last year.
Some 422 companies, or 84 percent, of those in the index will participate, marking the highest rate since 1997.
"Dividends continue to be one of the few income-generating
alternatives available to investors," Howard Silverblatt, senior index
analyst at S&P Dow Jones Indices, said in a statement. "Interest
rates have risen significantly but are still historically low, with
alternative income-producing instruments also low."
Conventional wisdom suggests that dividend payers tend to fall out
of favor in a rising rate environment as investors look elsewhere for
yield. But, though rates have been on an upward trajectory, they remain
low historically and still attractive to investors looking to preserve
an income stream.
Markit has identified banks, automobiles and
parts, and technology as three industries in which dividend increases
could be the biggest.
The fourth quarter established solid
momentum heading into the new year, with net increases up $12.7
billion—about 50 percent higher than a year ago when companies were
hiking dividends in the wake of an expected rising tax environment.
"At this point, we expect [the first quarter] to be a very busy
positive period for dividends, with 2014 setting another record for
payments," Silverblatt said.
(Read more: This week may decide where stocks close out 2014)
In addition to the big turnout likely from the S&P 500, all 30 members of the Dow Jones Industrial Average are likely to pay. ExxonMobil led the way in 2013, with an $11 billion dividend, as all 33 components—there were three replacements—paid.
On the S&P 500, Apple likely will set the pace with an expected $11.8 billion payout.
The trend comes as the dueling economies between
Wall Street and Main Street show ever-greater divergences. The S&P
500 is coming off a 29 percent year, but companies continue to turn in
below-par plans for capital expenditures and hiring.
(Read more: Corporate deal-making ready to take off next year)
Some recent numbers suggest that trend could be turning.
The latest Purchase Managers Index reading indicated that capital
expenditures could rise this year. The new orders index hit 62.4 in
December. As the PMI is a diffusion index, anything over 50 indicates
expansion.
The government shutdown in October "may have led to
companies pausing a bit longer (based on the decline in confidence
measures), but a rebound is occurring," analyst Don Rissmiller at
Strategas said in a note. "We continue to believe that business spending
is set to pick up, both in the U.S. and abroad."
But investors
have penalized companies using the $1.9 trillion on the collective
corporate balance sheet to expand business rather than reward
shareholders. Until that trend changes, or interest rates rise
appreciably, dividends are likely to remain in favor.
—By CNBC's Jeff Cox. Follow him on Twitter
@JeffCoxCNBCcom
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