Driven by a combination of tax cuts and soaring levels of business confidence, U.S. corporations are projected to raise their dividend payouts by about 9% in 2018, per research by IHS Markit reported by Barron's. Back in December, the same research firm was forecasting 7% dividend growth. "We knew there would be an impact from tax cuts...[but] there have been some big upside surprises in the past seven weeks," is what Thomas Matheson, head of dividend research at IHS Markit, told Barron's.
Serial Dividend Raisers
Among members of the broadly-based S&P 1500 Index, 24 companies have increased their dividends in both the fourth quarter of 2017 and in the first quarter of 2018, per IHS Markit and Barron's. The S&P 1500 includes the large-cap S&P 500, the mid-cap S&P 400, and the small-cap S&P 600. Here are eight of those stocks, with their current dividend yields and one-year price changes as of the close on March 1, per Barron's:
- AbbVie Inc. (ABBV): 3.37% yield, +80% gain
- Visa Inc. (V): 0.7% yield, +36% gain
- Union Pacific Corp. (UNP): 2.27% yield, +18% gain
- Aflac Inc. (AFL): 2.37% yield, +21% gain
- Six Flags Entertainment Corp. (SIX): 4.93% yield, +7% gain
- Synnex Corp. (SNX): 1.15%, +3% gain
- Associated Banc-Corp. (ASB): 2.43% yield, -4% loss
- UMB Financial Corp. (UMBF): 1.58% yield, -7% loss
Barron's notes that only 10 companies in 2017 and 12 companies in 2016 had increased dividends in two straight quarters. The date of Barron's story was February 23. (For more, see also: 12 Dividend Stocks for Bull and Bear Markets.)
Confidence in Earnings
Again looking at the broad S&P 1500, about 20% of the dividends announced in the first quarter have beaten IHS Markit's estimates, Barron's says. Among those companies that pay quarterly dividends, about 66% have announced what they will pay. Of these, nearly 30% are raising their dividends, up from 25% the same time last year, and many of these increases are higher on a percentage basis than they were last year, per both sources.
Breaking down the S&P 1500 into its components, the aggregate dividend increases projected by IHS Markit for 2018 are, per Barron's: 8.9% for the S&P 500, 9.3% for the S&P 400, and 4% for the S&P 600. As Matheson tells Barron's, dividends indicate the confidence that management has in future earnings, and he predicts that more companies will be increasing their payouts in consecutive quarters. (For more, see also: 10 Banks With Soaring Dividend Payouts.)
Just focusing on the S&P 500, more than 20% of those companies have hiked their dividends so far in 2018, while none have decreased their payouts, The Wall Street Journal reports. This is the first time since 2011 that there have been no dividend cuts, per analysis by S&P Dow Jones Indices cited by the Journal. Moreover, the average dividend boost among the S&P 500 so far this year has been a robust 14%, the biggest growth rate since 2014, the Journal adds.
Competition From Bonds
Besides tax cuts, rising earnings and increased business confidence, rising bond yields also may be a factor in spurring dividend increases, the Journal notes. As rising bond yields make equities relatively less attractive, there may be some imperative for corporate managements to increase dividend payouts in an attempt to prop up their stock prices, the Journal suggests.