If the US economy is falling into recession, you could not discern it from the dividend actions of major US companies over the last two weeks. As you know, one of our theories on dividends is that since dividends are decided by a company's board of directors, they speak as much about the future as the past . This is because no board wants to set a dividend policy that will lead to a cut in the dividend in the future. If our theory is correct, business is not as bad as the headlines would have us believe. According to the chart at the right, dividend growth remains strong. (Click to enlarge)Over the last two weeks 19 major companies raised their dividend. No major company lowered its dividend. The table above shows some very strong and surprising dividend hikes. I have highlighted 5 in green in column 7. Abbott Labs hiked their dividend nearly 11%. This is much higher than their 3-5 year trend shown in column 6. Abbott has taken the lead among health care stocks in assembling the right mix of products.
Coke raised its dividend nearly 12%, another sign that the world leader in soft drinks continues to regain in once dominant position in the industry.
Colgate. CL is one of our favorite stocks, and we were pleased to see their 11% dividend hike. While this is slightly lower than their average of recent years, we believe it signals good things for this important consmer staple in the year ahead.
ITT, an industrial company, raised their dividend nearly 25%. This is well above their recent trend, and another sign that the industrial sector is still growing at a solid rate through their international sales.
Nordstrom's double-digit hike was impressive coming from a company in the retail industry, which most people believe is headed for trouble. Nordstroms must be of the mind "that this too shall pass."
Toronto Dominion put most US banks to shame by hiking their dividend over 11%. Minimal subprime exposure and a strong Canadian economy are obviously the drivers of TD's impressive dividend hike.
Since we began tracking this dividend data (near the first of the year), dividend growth has averaged approximately 12.4%, only slightly less than the average of the last 3-5 years, and as shown at the bottom of the table, approximately 60% of the companies have made dividend hikes that were higher than their 3-5 year averages.
It is difficult to be too pessimistic about company profits for 2008, when dividend hikes continue to be so strong. I realize something has to give sooner or later -- dividend growth cannot continue to be strong should a deep recession occur in 2008. Having said this, the people who run these corportations are reading all the same newspapers you are, and they are saying by their actions that their businesses are still in a growth trend.
Clients and employees of DCM own ABT, KO, CL, and WRI.
8 comments:
TD just raised their dividend from $0.57 to $0.59, which is a 3.5% increase, not an 11% increase.
Shawn
TD's hike in the table is a year over year hike. They hiked the dividend to 59 cents vs. 53 cents in the same quarter a year ago. (All in Canadian Dollars)
thanks for keeping an eye on me. I did have to spend a fair amount of time pouring through the different ways companies talk about their own dividends.
OK, thanks. TD is a very well regarded bank in Canada.
A while ago you said you were going to post some thoughts on Cdn banks, but I forget if you did.
Excellent post! I plan to link to it in my my weekly carnival/article review this Friday.
Best Wishes,
D4L
I am not sold on the premise of this post. Highlighting cherry picked dividend growers does not seem to me to be a useful way to determine a recession. Would it not be more helpful to look at present aggregate corporate dividend growth rates vs. corporate dividend growth from previous recessionary periods. Seems to me that a comparative method would provide more context versus the ad hoc dividend analysis in this post.
I realize this post is not scientific and perhaps in these days it should be. The 19 companies were ad hoc only in the sense that they were bigger companies and companies that I know. I did not use any smaller companies or small banks. There were many of those and I did not think that they added to the macro view of things.
Since this piece has drawn lots of attention, I will try to make it more definitive, say stocks that are in the the S&P 500. Even then I know the issue is the S&P 500 is not truly indicative of the US economy because its companies generate so much of their earnings globally.
Since I invest in stocks and not the in economy, I think I may need to redefine what the dividend hikes are saying. I was showing the info as an indicator of what big companies are doing with their dividends. I still believe there is value in this information, but I do see your point. Let me try to at least make it more index specific. I have NIP dividends from Bloomberg. Problem is info is very slow to change, while dividends announcements are coming every day.
I'll do my best. I do appreciate the issues you raise and I even thought about them myself but thought my big company approach would suffice. In times like these, I believe we need tighter data, and I'll try to make it less ad hoc.
Thanks again for your interest and input.
Mr Donaldson: No one can accuse you of being a myopic analyst. I do appreciate your perspective on the markets.
You make an excellent point in saying "I invest in stocks and not the in economy". In today's market environment, that point of view will surely be one that will win out long term.
Good post, though I think we are headed for a pretty big recession, in spite of dividend hikes. One thing I noticed, nearly all of these companies earn significant income outside of the US, so I'm not sure they are bellweather stocks for the US economy.
CL is one of my core holdings. It is well run and nothing makes me happier than looking at that final chart at the end of the 10k where they show revenue, earnings, equity, dividends paid and shares outstanding.
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