U.S. firms reinstating, increasing dividends

CHICAGO — After companies slashed or eliminated dividend payouts in 2009, many American firms are beginning to cautiously reinstate — or even raise — theirs in this period of assumed recovery.

While shareholder payouts still lag versus 2008's, more than a dozen of the S&P 500 have raised or initiated a dividend this year, while only two have decreased or suspended them. And the firms now offering higher payouts represent a wide range of industries, from Coca-Cola to Tiffany and P.F. Chang's to T. Rowe Price.

More may come.

"We expect dividend payments to rebound in 2010, including those from the financial sector, as dividends are reinstated, since some companies now have both the ability and incentive to pay dividends," said Jeffrey Kleintop of LPL Financial Research. "In the current environment, a boost to the dividend payment may signal more confidence in sustained growth by business leaders than their guidance on the earnings outlook, helping to lift stock prices along with the dividend payout."

That comes after an especially rough spell as "the past two years have been tough on dividends," Kleintop said. "In fact, 2009 marked the worst year on record for dividends since 1955, resulting in a 21 percent decline in dividends per share for the S&P 500 companies as a whole."

In 2008 and 2009, 32 S&P 500 companies suspended their dividends, while only 11 initiated them, but 49 have raised or initiated dividends so far this year. One of the latest is Qualcomm, which announced late Monday that that its quarterly dividend would rise almost 12 percent to 19 cents a share.

"The strength of our business model is enabling significant investments in our strategic business initiatives while returning capital to stockholders," said Paul Jacobs, chief executive of the wireless-technologies firm, in announcing the increase. "Since commencing this program in 2003, we have returned $12.6 billion to our stockholders through a combination of dividends and stock repurchases."

For the month of February alone and for all reporting issues — not just the S&P 500 — dividend increases are up 29 percent from February 2009, although they're still down 42 percent from February 2008, noted Howard Silverblatt, senior analyst at S&P Indices.

"February is typically a good month, and this one has come through," he said. "Actual cash payments are still down year-over-year, but at least it's starting to go back up." He added that he expects it will "most likely (be) 2012-13 until we reach 2008 levels."

For the S&P 500, "it is the best month in two years, with a very impressive three-month run," he continued. "I expect more good news, but not as much of it over the next few months; I also expect reductions to start next month."

Josh Peters, editor of Morningstar's Dividend Investor, said dividends "really bottomed out last summer after a spate of cutting we hadn't seen since the Great Depression," including Dow Chemical, which didn't have one for the first time in 97 years. At the same time, he noted, some of the more stable, consumer-focused companies, like McDonald's and General Mills, "continued to raise theirs even during the crash."

But over the last couple of months, "we have seen less-traditional payers deciding to raise their dividends," including retailers, restaurant chains and tech firms, he said. "And assuming we don't tip back into a double-dip recession, we should continue to see more dividend increases than cuts."

Many companies will have to do so just to stay competitive against other issues in the stock market, he said, especially as more and more baby boomers approach retirement.

"They have learned that stock prices don't just go up, and they will want the reliable income," Peters said. "Compared to 10 years ago, the idea of trying to live off capital gains is truly frightening."