It's been an interesting week in the area of dividends as companies alter their payouts. The subject of paying dividends itself is a bit controversial, and theoretically it makes little economic sense. You could make the argument that paying dividends is a waste of capital given the fact that it is taxed twice; once as profit to the payer and second as dividends to the receiver. Capital that could be retained by the company essentially flows to the government when shareholders receive, and then pay taxes on their dividends.
Of course, theory quickly gives way to investor preferences, and as investors, we love to be paid, to have control over income. It's a bit of the old "bird in the hand" theory that applies here, and we like the cash in our hand, or even the choice to reinvest it in additional shares. It's behavioral finance at its finest, and makes for a fascinating debate.
The one dividend decision I'd been awaiting was from Corning (GLW) , which has done a great job of returning capital to shareholders over the past several years through dividends and share buybacks. Given the average near 16% dividend increase over the past four years, I expected that GLW would take the then 18 cent dividend up to between 21.5 and 22 cents, which would have represented an 18% to 22% increase. Perhaps that was a bit bold or wishful. In actuality, on Wednesday, GLW announced an 11% dividend hike from 18 to 20 cents/quarter. That puts the yield at a respectable 2.4%, and represents the fifth consecutive year that the company has increased the dividend at least 11%. The dividend payout ratio remains below 40%, and I look forward to the company continuing down this path.
Other notable dividend changes this week:
- Meredith Corp (MDP) , which raised its quarterly dividend 5.5% to 57.5 cents/quarter, yields 4.3%
- 3M (MMM) , 5.9% increase to $1.44 share/quarter, now yields 2.9%
- Prudential Financial (PRU) , 11% increase to $1.00 share/quarter, yields 4.4%
- Moelis & Co (MC) , 6.4% increase to 50 cents/quarter, yields 4.25%
- Western Union (WU) , 5.3% increase to 20 cents/quarter, yields 4.4%
- Gilead Sciences (GILD) , 10.5% increase, 63 cents/ quarter, yields 3.75%
- Pitney Bowes (PBI) , 75% decrease to 5 cents/quarter, yields 2.9%
On another note, it was reported on Thursday that Bath & Body Works and Victoria's secret parent L Brands (LB) was cutting its 60 cent quarterly dividend in half; in actuality, that's been known since November. It was not much of a surprise then, or now. Yesterday was just the new dividend's declaration date.
