Dividends Rising

As frequent readers know, I believe that dividend investing is best done surgically, one stock at a time, with the stocks selected not only for yield, but also for dividend safety and company stability, with extra points for a proven culture and history of raising dividends regularly. Rising dividend investing is a long-term strategy, not one designed to skyrocket one month and plunge the next. It’s the tortoise of stock strategies.

That said, the most recent across-the-board information from S&P provides a background against which dividend strategies can be measured. And the news is good.

This table shows the S&P 500’s cash dividends paid out over the last 10 years.

Year  Yield   Companies   Dividends Paid      Change from 
                       Paying             (Billions)              Prior Year

2009   2.0%      363                $195.61                  -20.9%
2008   3.1%      372                $247.29                     0.2%
2007   1.9%      390                $246.58                     9.7%
2006   1.8%      383                $224.76                   11.3%
2005   1.8%      386                $201.84                   11.5%
2004   1.6%      377                $181.02                   12.7%
2003   1.6%      370                $160.65                     8.9%
2002   1.8%      351                $147.81                     3.9%
2001   1.4%      351                $142.22                     0.8%
2000   1.2%      372                $141.08                     2.6%

As you can see, dividends crashed in 2009, falling almost 21%. Payments in Q1 2010 continued to decline, and they are expected to finish the quarter down 8% from Q1 2009. But those payments are mostly based on dividend rates set in place in 2009.

Going forward, S&P sees the indicated dividend rate for 2010 rising significantly. “Indicated rate” means the rate based on the most recent dividend declarations. Increases and initiations already announced in 2010 point to a significant increase in total dividend payments in 2010 compared to 2009. Through March 19, 68 of the 500 stocks have increased their payout rates and 7 more have initiated dividends, with just 1 decrease and 1 suspension. Compare that to Q1 last year, when there were 54 increases, 1 initiation, 40 decreases, and 6 suspensions.

Howard Silverblatt, Senior Index Analyst at S&P Indices, states that increases and initiations indicate confidence in future earnings abilities. S&P considers Q1 2009 to have been the worst quarter for dividends in history, so the year-over-year comparisons are not very challenging. Nevertheless, the early news this year is very positive. In my own Top 40 Dividend Stocks for 2010, 19 of the 40 stocks have already announced dividend increases for 2010, with no decreases.

Silverblatt goes on to note that April is usually a big month for dividend announcements. Four of the biggest payers--Exxon Mobil (XOM), IBM (IBM), Johnson & Johnson (JNJ), and Procter & Gamble (PG) are “up for renewal.” These four stocks, by themselves, account for about 11% of the S&P 500’s total payments. Interestingly, these stocks did not do badly at all in 2009 with respect to dividend increases. Respectively, they increased their indicated rates by 5%, 10%, 6.5%, and 10% last year. That illustrates why it’s a good idea to select your dividend stocks one by one. Even in an overall bad year like 2009, when total dividends fell 21%, these four posted average increases of 7.9%.

In 2009, 363 of the 500 stocks in the index paid dividends. To this point in 2010, 367 are dividend payers.