Dividends Have Been Big Winners This Year

Bloomberg notes that dividend stocks have done well this year:

In a year when American companies piled up record amounts of cash, the worst stocks were the savers and the best gave the money back to investors with dividends and buybacks.

Companies that hoarded cash such as CareFusion Corp. (CFN), Western Digital Corp. and 18 other members of the Standard & Poor’s 500 Index lost an average 15 percent in 2011, according to data compiled by Bloomberg. The 40 that repurchased the most stock or offered the biggest dividends climbed 5.7 percent, led by DirecTV and Reynolds American Inc. (RAI), the data show.

Bulls say gains in companies that returned money will help unlock almost $1 trillion of cash that chief executive officers have been hoarding for three years. Thomas Lee, the chief U.S. equity strategist at JPMorgan Chase & Co., says distributions should increase 28 percent to $1.1 trillion into next year. Bears say dividends and buybacks will be insufficient to keep the rally going as mandated budget cuts curb growth.

When investors get nervous, they seek stability and that means higher dividends. What’s also attractive about dividends is that they’re easy to understand and somewhat easy to project. Dividend payments tend to be much more stable than earnings.

The big change in recent years is that so many financial stocks slashed their dividends or got rid of them entirely. The Financial Sector ETF ($XLF), for example, used to pay more than 90 cents per share a year in dividends. That dropped as low as 17 cents per share but should start climbing higher as the Fed allows more dividend payments.

Posted by on December 19th, 2011 at 11:14 am


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