More Good Dividend News Ahead: All the More Reason to Invest Wisely – Read Here for Tips

Standard & Poor’s reports that 505 companies boosted their dividend payout in the second quarter and just 37 lowered their dividend. That’s a continuation of a nice post-crisis trend. In 2010’s second quarter 335 firms increased their dividend payout and in last year’s second quarter 444 raised their payout.

Among the dividend hikers of late are General Mills (GIS), Target (TGT), Walgreens (WAG) and Caterpillar (CAT).

The current average yield for dividend payers is 2.77%. Compare that to today’s 10-year Treasury yield.

10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts

That’s far from normal. According to S&P, the average dividend yield for stocks is typically 43% of the yield you can get on the 10-year Treasury. Yes, of course, stocks are far more volatile. Remember, you’re buying the stock, not just the dividend. And though firms aren’t eager to slash a dividend, it’s not unheard of. (See: 2008 and 2009, especially the financial sector.) But man, you sure are getting paid a nice chunk of income over what Uncle Sam is doling out.

But investing is all about tomorrow, not yesterday. So is there still some growth mojo for dividend payers?

Howard Silverblatt, S&P’s dividend guru says yes. He points out that the dividend payout ratio (the percent of company earnings that is sucked up to pay the dividend) historically has averaged 52%. Today the average is still a very low 32%, suggesting firms have plenty of earnings on hand to keep the increases coming. You can chart dividend payout ratios on YCharts Pro, as well as Cash Dividend Payout Ratios (YCharts editor Dee Gill explains why the cash dividend payout ratio is an even better metric to follow.)

Silverblatt currently estimates that more than 70% of the stocks in the S&P 500 that deliver a dividend will boost their payout in 2012.

While it’s natural in today’s low yield world to get all googly-eyed over yields, the smarter gambit is to focus on the actual dividend growth. Ned Davis Research has documented that within the S&P 500, companies that consistently boost their annual payouts deliver stronger average total returns than companies that have a static dividend, as well as those that don’t pay one at all. The Vanguard Dividend Appreciation ETF is teeming with dividend-growers worth a look.

Carla Fried is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.



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