Dividend growth continued to shine last year, and many analysts are predicting the same for this year, with projections of higher payouts combining with expectations that the recent stock rally is showing signs of exhaustion.
While stocks put up a double-digit-percentage gain in 2014, the S&P 500 has only risen 3% in the past month.
That’s not to say there’s no upside from here, but a recent survey of investment professionals by CNNMoney called for an average gain of 8.5% this year, below last year’s return, on expectations that a continued advance will be hindered by a return to rising interest rates and sluggish growth outside of the US.1
That could mean the demand for yield will continue to be in fashion.
As a Barron’s.com article pointed out this week, the year just ended was the fourth in a row of double-digit gains in cash dividends, with investors reaping additional payouts of $197 billion over that stretch.2
Even better, Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told Barron’s that 2015 should easily set another record, even if companies maintain the same payout as in 2014.
According to Barron’s, among some 10,000 US-traded issues, 971 companies enhanced their distributions in the fourth quarter, up nearly 10% from a year ago. For all of 2014, increases advanced by 14.3%.
The attractiveness of companies paying high-yielding dividends has been evidenced in many of their stocks. The High-Yield Dividends motif, for example, has gained 22.5% in the past year. In that same time, the S&P 500 has returned 13.8%.
In the past month, the motif is up 3.8%; the S&P has increased 1.4%.
One possible wild-card for dividend investors, Silverblatt noted, is the price of oil. He said that while the dollar aggregate of dividend cuts was flat in last year’s fourth quarter, over half of the decreases came from energy stocks. In addition, he pointed out, energy accounts for more than 11% of dividends in the general market. “If lower oil prices cut into earnings and cash flow, dividends could eventually be hurt.”
On the other hand, Silverblatt told Barron’s, it’s not necessarily time to steer clear of the sector. Dividends are typically the last to go, he maintained, “especially where [payouts] are part of the corporate culture.” In such cases, stock repurchases could be axed before dividend payouts.
Overall, however, the near-term future for dividend stocks looks strong, if not at last year’s double-digit pace, according to Brian Hennessey, portfolio manager of Alpine’s Dynamic Dividend Fund. “Companies in the US still have very good balance sheets and good cash generation, and dividend payouts are still below the average of the past 50 years,” he said.3
For investors convinced dividend yield will be even more attractive in 2015, the High-Yield Dividends motif may be worth further consideration.
1Matt Egan, “2015: The year the stock market slows to a trot,” cnnmoney.com, Dec. 14, 2014, http://money.cnn.com/2014/12/14/investing/stock-market-2015-prediction/, (accessed Jan. 12, 2015).
2Shirley A. Lazo, “Payouts Rise Despite Energy Fears,” barrons.com, Jan. 10, 2015.
3Kelley Holland, “Dividend stocks that could yield big returns in 2015,” cnbc.com, Jan. 12, 2015, http://www.cnbc.com/id/102324931#.