Despite a looming increase in dividend tax rates, aggregate dividends per share (DPS) for the S&P 500 grew 15.5% year-over-year at the end of Q3, and the number of companies paying a dividend in the trailing twelve-month period again surpassed 400 (80% of the S&P 500 index). In support of this growth, the S&P 500 also hasn’t shown a slowdown in companies initiating dividend payments. In Q3, 3.0% of non-payers “initiated” dividends, which is nearly triple the average over ten years (1.2%). Dividend initiations in this case were defined as companies which started paying dividends over the quarter and had not previously made a distribution over the past 18 months. In addition, dollar-value trailing twelve-month dividend payments and aggregate payout ratios are both trending well. In Q1 2012, cash outflows from dividend payments surpassed the pre-crisis peak of $255.5 billion and have continued to march upward. The Q3 sum of $277.4 billion is 8.5% above that level. Also, while the aggregate dividend payout ratio is 2.0% below the ten-year median, it is at its highest level (29.1% at the end of Q3) since the recession (when payout ratios were distorted by low aggregate earnings during the recession).
While there have been a number of companies that are signaling short-term changes in dividend policy or a shift towards more share buybacks (see our recent Market Insight report for more detail), a majority of companies have not yet responded, including the top ten dividend-payers in the S&P 500.
In addition, the aggregate, forward twelve-month DPS estimate for the S&P 500 was 10% above the actual trailing twelve-month (TTM) payout at the end of November, which is a premium that is well above the ten-year average of 3%. Also, even when excluding the periods during the financial crisis (when forward DPS estimates fell below trailing figures), the forward consensus premium is in-line with the stabilized average starting in 2011.
So why haven’t more companies responded to the impending “fiscal cliff” by holding or cutting to their regular dividend? Some companies that have responded to questions about how they plan to address increased dividend tax rates have cited a desire to maintain long-term dividend strategies—particularly consistent, annual increases to DPS.
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