Can a Dividend Hike be Insincere? Goldman’s Make You Wonder – Exxon Plays No Games
The glitter on this year’s dividend bandwagon sparkled brighter this week when Goldman Sachs (GS) boosted the quarterly payout on its common shares to 46 cents per share from 35 cents. Goldman’s first dividend increase in six years was an upbeat element of the banking giant’s otherwise guarded first-quarter financial report.
Standard & Poor’s analysts predict that dividends cash from the S&P 500 companies will reach a record high this year of $279 billion, up 16% from last year. Already this year, Apple (AAPL) initiated dividends, making technology stocks the second highest dividend payer among major S&P 500 sectors – a man bites dog story for long term tech investors.
Major banks, including JP Morgan Chase (JPM) and Wells Fargo (WFC), have lost ground to techs as dividend payers, such as Microsoft (MSFT) and Intel (INTC). Banks are cranking up their dividend pumps, after they get the green light from federal bank regulators.
Value investors should not gainsay more generous cash dividends flowing from cash rich companies. But it’s not a bad idea to kick the tires of the dividend bandwagon. 2011 total returns of dividend payers handily beat the broad stock market gain – another news flash for long-term investors. The results seem to have created a rare groundswell in executive suites in favor of dividends. Dividend decisions based on a me-too strategy can be troubling.
For example, analysts noted that Goldman Sachs’ dividend boost represented yet another way of handing cash to company insiders, who control 10% per the stock. The Wall Street Journal noted that Goldman’s dividend hike comes as the bank has been trimming its stock buybacks – another form of returning value to shareholders. It’s better to have a bigger pie than just different sizes of slices.
Goldman’s tactical use of dividends and share repurchases is evident in comparison with regular dividend booster Exxon Mobil (XOM). Both companies have the profitability and balance sheet strength to afford direct rewards to shareholders. But Exxon Mobil has a more balanced program.
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