Every year since 1976, McDonald's has increased its annual payout to shareholders. This year it will keep the streak alive, raising its annual dividend to $2.80. In doing so, it will join a broad range of companies that weathered a challenging economy and are now delivering their best payments to shareholders since the financial crisis.
If analysts' forecasts come true, that trend will continue later into the year, as companies release more of their cash and try to win over investors still hesitant about putting their money back into stocks.
"The idea is beginning to percolate a little bit in management suites that paying a bit higher percentage of your earnings in dividends might be a way to a higher stock price and better benefits for shareholders over all," said Edward F. Keon, portfolio manager for Quantitative Management Associates.
Companies listed in the Standard & Poor's 500-stock index paid $240.6 billion in dividends in 2011, up from $205 billion in 2010. The 2011 payout was the largest since 2008, when firms had not yet been hit by the full brunt of the financial crisis and paid a record $247.8 billion in dividends.
Dividends are on track to set a record of more than $252 billion in 2012, according to data released by S.& P. that is based on the current dividend rates of 394 companies. While there could be some changes as the reporting season begins this week, analysts said companies were expected to continue to pay shareholders, possibly at the same rates or higher, as some of the economic and fiscal headwinds from 2011 tapered off.
"Dividends have been rising strongly," said Binky Chadha, the chief strategist at Deutsche Bank. "And the rise that we have seen has plenty of upside."
Companies that pay high dividends were some of the best performers in the markets last year.
David Fuller's view Stock market performance in recent years
has been dominated by the Autonomies - Fullermoney's moniker for the big, successful
multinational companies which are leaders of their respective industries. Autonomies
have outgrown their domestic market and are truly global companies, sourcing,
producing or manufacturing in a number of countries and selling worldwide.
Most of today's Autonomies have emerged from developed economies and are thriving in this era of globalisation. The fastest growing portion of their earnings is coming from the world's Asian-led growth economies where brand names are particularly popular with the rapidly increasing middleclass.
McDonald's (monthly, weekly & daily) mentioned above is a leading Autonomy and also a Dividend Aristocrat. In a healthy sign that companies are paying more attention to their shareholders, we can expect the trend of gradually rising dividends from successful firms to increase.
Fullermoney reviews the Autonomies and Dividend Aristocrats on a frequent basis. We will continue to favour them while they trade above a rising 200-day moving average, although we also caution that overextensions relative to these MAs, which we currently see with McDonald's, will be followed by mean reversion reactions towards the MAs, usually in the form of sideways to somewhat lower ranging.