Tuesday, April 05, 2005

Dividends on the Rise

Standard and Poors has just released their first quarter analysis of dividend actions by the 7000 companies in their universe. The number of companies increasing their dividends in the quarter grew by 16.9% over 2004 and 29.7% vs the same period in 2003. S&P believes the dividend increases will continue because of three forces: 1. very strong growth in cash flow, 2. dividends are now taxed like capital gains, and 3. the meandering stocks market. They make the point that the meandering stock market will likely prompt companies to show their shareholders the money in the form of dividends and rely less on share buy backs. S&P believes that dividends have returned to favor among investors much more than we do, but we agree with their assertion that in these wobbly stocks markets, cash dividends will catch the attention of more and more investors.