A Slow First Quarter for Dividend Increases

Dividends paid by S&P 500 member firms rose in the first quarter with companies from the benchmark U.S. index having paid out $93.6 billion in dividends as of March 27. However, dividend growth slowed in the first three months of the year.

Net dividend increases rose $12.6 billion in the first quarter “down from the $17.9 billion increase during the first quarter of 2014. The dollar amount decline equates to a 30.0% year-over-year slowdown in dividend increases. For the 12 months ending March 2015, dividend net increases fell 17.7% to $49.6 billion compared to an increase of $60.1 billion for the corresponding period in 2014,” according to S&P Dow Jones Indices.

Led by the energy and materials sectors, “172 companies decreased dividends in Q1 2015 compared to 67 in Q4 2014 and 102 in Q4 2013,” according to S&P Dow Jones Indices. Notable first-quarter dividend cutters from those sectors include Freeport-McMoRan (NYSE: FXC) oil services firms Ensco (NYSE: ESV) and Diamond Offshore (NYSE: DO). [Energy ETFs Wait on Dividend News]

Speculation has turned to whether Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), the two largest U.S. oil companies, will be able to keep their lengthy dividend increase streaks.

Each of those companies have dividend increase streaks of at least 25 years (Exxon’s dividend increase streak is 32 years), which qualify them for admission into the S&P 500 Dividend Aristocrats Index. That index is tracked by the fast-growing ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL).

Exxon is the largest S&P 500 dividend payer in dollar terms, having paid out nearly $11.6 billion in dividends on a trailing 12-month basis , according to FactSet data. Only six companies, including Exxon, paid more in dividends over that period than the $7.9 billion paid by Chevron.

If Exxon and Chevron cannot maintain their dividend increase streaks, they risk expulsion from NOBL, and in the case of Exxon, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG). VIG, the largest U.S. dividend ETF, features Exxon as a top 10 holding and only allows companies with dividend increase streaks of at least a decade into its lineup. [Some Dividend ETFs Lag in Q1]

“Unfortunately, our concern expressed last quarter with respect to energy and energy related dividends played out,” says Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices.“Half of the cuts for the quarter were in energy or materials, which amounted to over $3.5 billion or 80% of the cuts as lower oil and commodity prices depressed earnings and cash-flow. While prices have stabilized recently, confidence has been reduced with companies cutting back on expenditures, including dividends.”

Despite the slowing pace of dividend increases in the first quarter, there are some positive tidbits. For example, Silverblatt expects dividends paid in the second quarter to top the first-quarter record. Silverblatt also noted May is a fertile period for dividend increases. [ETFs for Upcoming Dividend Increases]

“The good news for dividends is that more small-cap issues are initiating a cash dividend policy to the tune of a 10.5% increase in payers from the end of 2013. While the yield between indices based on size is significant (large, mid and small), on an issue basis size was not a significant differentiator, with small-cap payers paying on par with large-cap ones,” adds Silverblatt.