Please sir, I want some more dividends.
Flush with cash and encouraged by a strengthening economy, companies are doling out dividend increases to the delight of yield-hungry investors.
And with corporate profits rebounding strongly, the trend is likely to gather momentum over the next couple of years, analysts predict.
This month alone, Canadian companies including Rogers Communications Inc., Shoppers Drug Mart Corp., TransCanada Corp. and Russel Metals Inc. have raised their quarterly payments, signalling their confidence in both the economy and the strength of their balance sheets.
South of the border, the list of dividend raisers in February includes Coca-Cola Co., 3M Co., Thomson Reuters Corp., Avon Products Inc., Hasbro Inc. and many others.
"February is extremely strong," said Howard Silverblatt, senior index analyst with Standard & Poor's in New York. "The good news is there's going to be a lot more paid out this year than last year."
February still has a week to go, but U.S. companies have already announced more dividend increases - $4.88-billion (U.S.) worth - than the $3.3-billion of hikes in all of January and February of 2010. What's more, dividend decreases - which were common during the financial crisis - have dried up.
The flurry of dividend hikes reflects several factors, including the recovery in corporate earnings, low interest rates and record cash of nearly $1-trillion sitting on U.S. corporate balance sheets. More increases are almost certainly on the way.
Even with the recent dividend increases, the S&P 500 payout ratio - the percentage of profits paid out as dividends - is still a conservative 27.4 per cent. That's significantly lower than the average payout ratio of 43 per cent since 2000 and 52.3 per cent since the 1930s, suggesting there is plenty of room for dividends to grow.
Why are payout ratios so low? One reason is that companies don't immediately hike dividends when their profits increase, because they want to be certain they can maintain dividends at a higher level before they push through an increase. The last thing a company wants to do is to raise its dividend, only to cut it.
For all of 2011, Mr. Silverblatt predicts the total amount of U.S. dividends paid will climb as high as $222-billion, up 8.3 per cent from 2010. But it will probably be 2013 before dividends eclipse the previous record high of $247.9-billion in 2008, he said.
"It's going to take a while to get back [to 2008 levels] While earnings have totally recovered and may set a new all-time high this year, dividends are a lot slower" to rebound, he said.
Another reason companies are increasing dividends is that shareholders are demanding it, said Tim Burt, chief investment officer of Winnipeg-based Cardinal Capital Management.
"A lot of corporations are under pressure to spend some of the cash that's building up on their balance sheets," he said.
"Unless they've got major capital expenditure projects that are under way, they're going to have to return the cash to shareholders in some way, through stock buybacks or dividend increases."
Adding to the demand for dividends, income-oriented investors are looking for ways to beat the puny yields on bonds. What's more, dividend-oriented mutual funds and exchange-traded funds have sprung up to meet the need for income, and that's also causing more companies to adopt a dividend-friendly focus.
For Canadian investors, the big question is when the Big Five banks - which put dividend increases on ice during the financial crisis - will resume their generous ways. Mr. Burt expects that at least two banks - namely Toronto-Dominion Bank and Bank of Nova Scotia - will announce dividend increases when they release first-quarter results in March.
By the end of the year, he predicts all banks will have announced dividend increases. That includes Bank of Montreal, despite speculation that it will hold off because of its recent $4.1-billion purchase of U.S. bank Marshall & Ilsley Corp.
"I think they'll raise. It probably won't be a big amount compared to the other banks, but I don't think BMO wants to be the only bank not to raise its dividend this year," he said.
John Heinzl