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Beginning of a Long Demographic Influence on Dividends?

From the Wall Street Journal this past weekend – a small and fairly anecdotal piece of data – but interesting nonetheless. According to Jason Trennert of Strategas Research Partners, over the last 14 months, the 25 companies that paid the most dividends as a percentage of their market value beat the S&P 500 by 8.9 percentage points, while the 25 companies that increased cash on their balance sheets the most, lagged by a wide 8.4 percentage points.  Despite a small data sample and the time frame appearing somewhat random – though it does coincide with the pullback lows of June, 2010 – an intriguing underlying story seems to be developing.  That story is that investors are searching for yield and growth of yield – and appear to be losing patience with those corporate boards that would rather hoard cash than prudently distribute a share of profits in the form of dividends.

As we wrote in our January, 2011 Quarterly Point of View, for the next 19 years there will be approximately 10,000  people a day celebrating their 65th birthday in this country – the age most notably linked to retirement. With the 10 year US Treasury Note yielding barely above 2% and money market funds paying virtually nothing – investors are seeking income in other places, and that includes dividend paying stocks.  If the data we just cited is any indication, the future bodes well for those companies that pay durable and growing dividends, and corporate boards that don’t consider it important may find an entire demographic punishing them.

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