A Sign of the Times: Companies are Raising Dividends
Dividends Rise as Earnings Improve
Dividend payouts increased during the first three months of 2021, buoyed by improving earnings outlooks. Companies across a variety of industries seem hopeful that the uncertainty and challenges of the past year may be coming to an end.
In the first quarter of 2021, 120 companies in the S&P 500 raised their dividends compared to 91 in the fourth quarter of 2020. Just two companies reduced or halted their dividends during this year’s first quarter.
Dividends Underperform Amid Cuts
Many US companies cut or suspended their dividends during the first quarter of 2020 to preserve capital, including Ford (F), Boeing (BA), Marriott International (MAR), and many others.
As a result, dividend stocks have underperformed the broader markets. Last year, from March through the end of August, the MSCI World Index returned 55% in US dollars. The MSCI High Dividend Yield Index returned 37% during the same period, but that disparity has been narrowing recently.
Are More Dividend Raises in Store?
So far, dividend increases aren’t huge when compared to a year ago. Of the S&P 500 companies that raised their dividends in the first quarter, they did so by 11.1%. That compares to 9% in the same period a year ago.
As COVID-19 vaccine rollout efforts progress and the economy reopens, companies will likely be more willing to return capital to their shareholders. Some analysts expect to see a 5% increase in payouts on a per share basis compared to 2020 levels. The past year has been difficult for companies and dividend investors, but now glimmers of hope are starting to appear.
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