by Chuck Carlson, editor The DRIP Investor
Dividend stocks as a group performed well on a relative basis in 2011, as investors, hungry for more cash ?ow and less volatility, snatched up dividend payers. And corporations did their part, boosting dividends at a rate not seen since 2007.
According to Standard & Poor's, dividend increases reached more than $50 billion in 2011, up more than 89% from 2010. Overall, S&P reported 1,953 positive payout actions -- the highest since 2007.
Dividends should continue on the upswing in 2012 for at least four reasons:
- Companies have nearly $2 trillion in cash sitting on their balance sheets. That's cash that can be used to boost dividends.
- Corporate pro?ts set an all-time high in 2011, and profit growth should continue in 2012. Companies should be willing to share that growing pro?t pool with shareholders in the form of higher dividends.
- The percentage of corporate pro?ts being paid out in dividends (known as the "payout ratio") is 28%, well below the 20-year average of 40%. Said differently, corporate America could boost dividends an aggregate 43% in 2012, and the pay- out ratio would only be back to its 20-year average.
- It is clear investors want dividends. With money markets yielding slightly above zero and many bonds hardly boasting rich yields, investors are desperate for dividends.
The lust for dividends was quite evident in 2011 when dividend-paying stocks represented one of the few sweet spots in the market.
Corporate executives no doubt saw the interest and demand for dividend stocks in 2011 and are likely to be more predisposed to boosting dividends to help attract investors to their shares.
Which companies are likely to boost their dividends in 2012? One good hunting ground is a universe of stocks that have a history of boosting their dividends.
S&P releases each year its list of "dividend aristocrats." These are stocks that have boosted their dividends annually for at least 25 years.
S&P's High Yield Dividend Aristocrat Index is comprised of the 60 highest-yielding constituents of the stocks of the S&P Composite 1500 Index that have increased dividends every year for at least 25 consecutive years.
The list contains a number of our favorite DRIPs (dividend reinvestment plans).