Monday, December 23, 2013

Dividend Growth Estimates Decelerating

The analysts at Factset find the slowing growth in dividends 'surprising', but as I have shown the cuts in dividends remain high and in elevated/recessionary condition levels. More so, slowing growth in dividends flies in the face of ever higher equity prices.

Analysts’ estimates for forward twelve-month dividend per share (“DPS”) growth have slowed for six consecutive quarters. The current, forward twelve-month DPS growth estimate (+8.7%) is the lowest projection since Q3 2010—a period when trailing DPS growth was negative—and the estimate for growth in 2014 is even lower at 8.5%.

SP500_1yr_Fwd_Growth_DPS (Dec 16 13).png This trend is surprising given that the number of companies paying and increasing DPS year-over-year have reached the highest levels in over a decade. The number of stocks paying dividends in the S&P 500 reached a 17-year high (417, or 84% of the index), and the number of companies increasing their year-over-year, dividend per share distribution hit the highest level (329, or 66% of the index) in at least twenty years.

However, the reduction in analysts’ forward DPS projections may be a reaction to falling growth rates for the trailing period. The 13.1% trailing twelve-month growth rate for Q3 2013 is the lowest since Q4 2010. As a result of slowing DPS growth, other dividend indicators are showing declines. The aggregate dividend payout ratio (a ratio of dividends to earnings) for the most recent quarter fell relative to the previous quarter (from 31.6% to 31.5%) for the first time since Q4 2011. This metric also stands to decline further based on forward projections. The forward DPS growth estimate for Q3 2013 was smaller than the growth estimate of forward earnings per share (by 55 basis points) for the first time in two years. Finally, the aggregate dividend yield of the S&P 500 dipped to its lowest level (1.9%) since Q1 2011 as DPS growth has failed to keep pace with the rise in the stock market.

Read more about the dividend trends of companies in the S&P 500 in this quarter's edition of FactSet Dividend Quarterly: US
. Visit to launch the report now.  

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