Filed Under:
Tickers in this Article: DFS, CLX, CL, KO, JPM, MS
Paying attention to dividend actions, meaning increases or decreases, can be a great way to diagnose a stock's health. The reason for this is simple: a company that cuts its dividend could be in the midst of, or headed for, a difficult period. On the flip side, a company that raises its dividend is often signaling that the company is, or will be, on solid financial footing. So which types of companies are increasing or cutting their dividends?

10 Tips For Choosing An Online Broker

Staples Are Solid
Year-to-date the largest number of dividend increases, a hefty 19 of 86 increases overall, have taken place in consumer staples. One large well-known company that upped its dividend was Clorox (NYSE:CLX). Clorox, of course, is well-known for its cleaning products. The company announced plans to raise its dividend from 46 to 50 cents.

Meanwhile Coca-Cola (NYSE:KO), which is world-renowned for its soft drinks, announced plans to raise its quarterly dividend to 41 cents from 38 cents. Finally, Colgate Palmolive (NYSE:CL) announced early in the year that it would raise its dividend from 40 to 44 cents per share.

So why are consumer staples companies so aggressively upping their dividends? I suspect that there are two reasons. First, it's a great way for the company to return money to the common shareholder during these trying times.

Second, I think it's because they are generally confident in the future. These types of companies generally make or sell products that we would have trouble living without. For that reason alone, I think that we will see positive news from this sector on the dividend and earnings front in the quarters to come.

Financial Trouble
The sector that is seeing the most dividend cuts is the financials. In fact, according to S&P year-to-date, financials have seen 32 of the 57 decreases. Some big names that have cut in the sector are:

Discover Financial Services (NYSE:DFS). Reuters reports that the company trimmed its dividend from 6 cents to 2 cents.

JPMorgan Chase (NYSE:JPM): The big name company slashed its dividend to 5 cents from 38 cents per share earlier in the year.

Morgan Stanley (NYSE:MS): The one-time high flyer cut its dividend from 27 cents to just 5 cents.

Going forward, I think the financials will be a risky place to play in the near-term. After all, the market and the economy are, I suspect, not quite out of the proverbial woods. However, over the longer haul I am optimistic that the sector will rebound and that we could see some companies eventually start to raise their dividends. Incidentally, one of my favorites for the long run is JPMorgan.

The Bottom Line
Consumer staples companies have seen a large number of dividend increases while financials have seen a large number of cuts. Very long-term I am bullish on both sectors. But near-term I think that Consumer Staples is the better sandbox to play in. (Read The Importance of Dividends for more on the topic.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center