Why 2018 Will Be ‘The Year of Dividends’

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Global corporations paid a record $1.252 trillion in dividends in 2017, according to the Janus Henderson Global Dividend Index.jh
Janus expects the record will be broken in 2018. Janus expects global companies to pay 8.5% more in dividends this year than last. Janus is likely right. I will be a year of dividends.
Dividends payments worldwide were $244.7 billion in the first quarter. This was a 10% increase from dividends paid in the year-earlier quarter.
Stockholders in U.S. companies were lead beneficiaries. They received $113 billion in dividends in the first quarter.
That’s a big deal, and a meaningful one. Dividends could be the principal source of return for many investors in 2018, the year of dividends.
We’re nearly six months into 2018 and the S&P 500 and Dow 30 are flat for the year. Only the FAANG-fueled NASDAQ Composite shows a meaningful gain. The NASDAQ Composite is up 10.1% year to date.
The economic backdrop continues to provide the grist to grind out dividend growth.
In the latest Economic Outlook, the Organization for Economic Cooperation & Development (OECD) says that the global economy will grow 3.8% this year and 3.9% in 2019. That’s growth sufficient to support uninterrupted earnings and dividend growth around the globe.
In our own backyard, gross domestic product (GDP) came in cool in the first quarter. The Commerce Department recently revised U.S. GDP growth down to 2.2% from 2.3%.
The good news is that U.S. GDP should heat up for the second quarter. The Atlanta Federal Reserve’s GDPNow forecast model calls for 4.7% annualized growth. The growth estimate was revised up from 4% only a week ago.
The Fed’s GDPNow model is likely to prove prescient. The economy feels toastier these days, and not because of the weather. Job growth sizzles.
The headline payroll number shows that payrolls increased by 223,000 in May. The consensus estimate was for 185,000 new jobs. The latest payroll gains drop the unemployment rate to 3.8%. The unemployment rate hasn’t been this low since the heady days of the dot-com boom in early 2000.
Average hourly wage rose slightly, lifting the year-on-year gain to 2.7%. It’s a Goldilocks gain: It’s enough to assuage fears that wages are stagnating, but not enough to induce wage-induced inflation.
Tax reform provides additional growth fuel.
The reforms, which include lower corporate-income-tax rates, encourage business activity. Lower corporate-income-tax rates lead to higher corporate earnings, and higher corporate-earnings growth. Analysts surveyed by FactSet expect S&P 500 earnings to grow at least 20% in 2018.
More earnings growth and more retained earnings lead to more cash on hand. S&P 500 companies already hold a record $1.8 trillion of cash and cash equivalents. These balance-sheet accounts will only swell. More dividends will need to be paid to relieve the pressure.
Though we will see a record increase in dividends paid this year, they’re unlikely to be accompanied with record yields. Because of relentless share-price appreciation driven by relentless earnings growth, most dividends will be paid to yield 2% to 4% on investment. The dividend yield on the S&P 500 is only 1.8%.
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