Companies opened the dividend taps in 2010, signalling their growing confidence in the recovery even as the U.S. economy struggles with high unemployment and cumbersome debt levels.
Of the 7,000 U.S. public companies that report data to Standard & Poor's, 1,729 raised their dividend payments last year, up 45 per cent from 1,191 increases in 2009. The dollar amount of dividend increases nearly doubled, to $29.4-billion (U.S.) from $15.6-billion. And with the recovery gaining momentum, all signs point to further gains this year.
"Companies are going to move quickly in 2011 to demonstrate to investors that they are well into the recovery mode, and dividend increases will be their early tool of choice to ensure that this happens," said Howard Silverblatt, senior index analyst with S&P.
Large-capitalization companies will likely be the most aggressive dividend raisers this year, "given that 75 per cent of them already pay a dividend compared to less than 40 per cent for the rest of the domestic U.S. market," he added.
In another encouraging sign, just 145 U.S. companies cut dividends in 2010, down 82 per cent from 804 in 2009, when corporations were hoarding cash in an effort to survive the financial crisis.
S&P didn't provide data for Canadian dividends, but it's clear from the recent rash of dividend hikes that companies are loosening the purse strings here as well. In the fourth quarter, companies that raised dividends included Fortis, BCE, Enbridge, National Bank of Canada, TMX Group and Canadian Tire.
A dividend hike is a vote of confidence from the company, said Bill Bouchard, founder of dividendinvestor.com and dividendinvestor.ca, subscription websites where investors can track, sort and screen dividend stocks.
"Companies have stronger balance sheets, they're seeing a levelling or a rebound in the economy and in their order books," he said. "By increasing dividends, they're telling investors that they're confident in their business prospects and they're willing to pay out more to shareholders."