Dividends Growing at the Fastest Rate in 35 Years

Here’s another look at how dividends have come back into play. The blue line is the S&P 500 and it follows the left scale. The yellow line is dividends and it follows the right scale. The two lines are scaled at a ratio of 50-to-1 which means that the dividend yield is exactly 2% whenever the lines cross.

What I like about looking at dividends is that dividends don’t lie. Earnings, book value and cash flow can all be distorted. But when a company sends you a check, you can be pretty sure they earned it.

I also like dividends because the dividend line tends to be very stable, especially compared with earnings and stock prices. Companies do not like to cut their dividend payments. They will if they have to, but it’s something they try to avoid.

This last recession was unusual because many financial companies had to slash their dividends or get rid of them entirely. By looking at dividends, you can see how absurdly cheap the market was in early 2009.

Dividends have been growing for the last seven quarters in a row. For Q4, dividends were up 20.62% from a year before. That’s the strongest quarterly growth since Q4 1976. (Note: Howard Silverblatt of S&P notes that due to actual payment days, the increase in Q3 dividends was minor, while Q4 was larger.)

Posted by on January 6th, 2012 at 1:55 pm

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