In today’s environment, investors are interested in positioning their portfolios for the inevitable normalization of interest rates as the Federal Reserve winds down its quantitative easing program. One particular area of focus have been equities that exhibit dividend growth—made attractive not only because of the current income but also because of the potential for future growth of that income. And we are seeing significant increases in dividends from some of the largest dividend payers thus far in 2014.
The top five increases in cash Dividend Streams® in 2014 have been:
• Bank of America increased its dividend fivefold, the first increase since 2009, for an approximate dollar increase of $1.7 billion.
• Wells Fargo announced an increase of 16.7%—this means approximately $1.1 billion more will be returned to shareholders.
• J.P. Morgan increased its dividend per share by 5.3%, resulting in an incremental increase of $600 million being returned to shareholders.
• PepsiCo increased its dividend by over 15%, meaning that an additional $530 million will be paid out as dividends.
• Rounding out the top five, Cisco Systems increased its dividend per share by almost 12%, meaning that an additional $410 million will be returned to shareholders.
While Financials have stolen the show in 2014 with some blockbuster dividend announcements following the recent stress test announcements, companies in all 10 market sectors are increasing their dividends. Below we examine the composition of U.S. dividend growth, focusing specifically on its behavior from November 30, 2007 (its prior peak), and from November 30, 2009 (its most recent trough).
How Big Is the U.S. Dividend Stream?
On November 30, 2007, WisdomTree saw a peak value in its U.S. Dividend Stream—approximately $288 billion, a number not surpassed until November 30, 2012, when a value of approximately $329 billion was reached. Conversely, on November 30, 2009, WisdomTree saw the lowest value in its U.S. Dividend Stream since inception—approximately $221 billion.
As of March 26, 2014, the firms in the WisdomTree Dividend Index have already grown their dividends an additional $20 billion since WisdomTree’s latest domestic screening date (11/30/2013). This means the current indicated Dividend Stream is nearly $387 billion.
Below we dissect the key drivers of the increased dividend payouts over this latest cycle.
Dividend Stream Growth
• Information Technology: This sector accounts for almost 37% of the increase in dividends from November 30, 2007, to March 26, 2014, with $36.5 billion of the $98.7 billion total increase in dividends. Technology firms are generally recent initiators, with lots of cash on their balance sheets and potential for further dividend growth. This sector accounted for about 20% of the increase from the November 30, 2009, low.