Dividend growth strong in both the long and short term – S&P 500 companies witnessed strong dividend growth over the past few years despite global economic uncertainty – the dollar value of positive actions has nearly quadrupled since 2009 and surpassed 2007 levels by 35%.
This isn’t only a long-term trend – the most recent data shows that within the S&P 500, $11 billion dollars more was paid out in dividends in March 2012 versus February 2012, and $40 billion more than in March 2011. To put this into further context, 314 (or more than 62%) of the S&P 500 constituents have increased their dividends over the past 12 months.
Cash accumulating – But even with increased dividend payouts, cash has continued to build on corporate balance sheets, reaching the highest levels since 2004, as a percentage of total assets.
Income-oriented funds attract inflows while broadly active funds suffer – While cash continues to pile up on the sidelines, investors have been betting there will be even more cash returned to stockholders. Lipper fund flow data for 2011 and early 2012 shows that while actively-managed equity funds suffered heavy redemptions, flows into income- oriented funds, have been consistently positive over the same period and now account for around 14% of total active mutual fund money.
There is also strong statistical evidence that broader styles of funds are increasingly focused on dividend yield as a factor in their investment process.
With companies paying out more in dividends and dividend-focused funds with more money to put to work, there are clearly opportunities for companies to market their story to investors.
Understanding the addressable market is key – an analysis of all mutual funds’ dividend yield preferences demonstrates that the overall addressable investor market grows considerably for companies that have dividend yields of about 2%.
If we analyze dividend yields from 2% to around 3.5%, the pace of that growth slows but the addressable market is still significant. And if your company is paying a dividend with a yield above 3.5%, the numbers show that, while individual fund preferences for yield and other investment characteristics naturally differ, there are very few examples left where your dividend yield would risk exclusion altogether from a portfolio.
For many investor relations teams whose companies have either recently changed their dividend policies or are likely to do so imminently, the question all IROs should ask is, “How can we maximize the opportunities available with income-focused funds?”
To hear our thoughts around this question and more on the trends described above you can now watch the webinar, download the presentation and our Rising Dividend study at your convenience.
Thomson Reuters IRHub Blog 