A Dividend Growth Slow-Down: Evaluating Prospects and Drivers

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Highlights of This Year’s Rebalance:

• Record Dividend Stream: 2016 marks the seventh consecutive year of growth for the U.S. Dividend Stream and a new high—58% above the mark set in 2007. Although the growth was positive, this was the first time in seven years that dividend growth wasn’t above  its longer-term average of 5.6%. The Dividend Stream, which considers both shares outstanding and dividends per share, was biased downward due to the reduction in shares outstanding (approximately 1.5% in aggregate). Adding back the 1.5% share reduction can get you closer to an aggregate 5% growth per share.²

• Financials Displayed Highest Growth: The sector has grown its dividends more than 8.5% since last year’s screening and has averaged almost 19% growth per year since hitting bottom in 2009. Also, the Financial sector’s dividends just eclipsed their previous high set in 2007—the last sector to do so. Growth was led by Citigroup and Bank of America, which grew their indicated dividends per share by 220% and 50%, respectively.

• Only Energy Saw Reduction: The Energy sector saw a Dividend Stream drop of 10%, the only sector to record a reduction in dividends. Exxon remains the largest dividend payer in the U.S., with an indicated Dividend Stream of $12.4 billion, and was able to slightly grow its dividend by 2.7% over the period. Chevron, the second-largest dividend payer in the sector, also grew its dividend over the period, albeit by less than 1%. But large cuts of more than 60% from ConocoPhillips, the Williams Companies, National Oilwell Varco and Anadarko Petroleum drove the decline. 

• Tech Titan Growth: Information Technology sector dividends have grown a remarkable 290% since November 30, 2007. At its prior peak, this sector constituted only 5.6% of the Dividend Stream, whereas now it constitutes almost 14.0% and is the second-largest dividend-paying sector behind Financials. 

Conclusion

With the slowdown in aggregate dividend growth of the market and rising interest rates putting pressure on some of the highest-yield segments of the market such as Utilities, it is perhaps increasingly important to focus on pockets of the market with the best potential to grow dividends.
Certainly some of President-elect Trump’s focus on cutting corporate tax rates and allowing companies to repatriate offshore cash might cause a positive impetus and stimulus for dividend growth toward the end of the year and into 2018.
In future articles we’ll look at dividend growth across a variety of indexes and look toward where we see the most long-term potential for dividend growth based on current fundamentals. 

²Each calendar year mentioned refers to the November 30 screening date for that year.