What Do Dividend Hikes by Apple and Exxon Mean for the Market?

Chief Investment Strategist

In recent weeks, the world’s most highly valued technology company, Apple, increased its annual dividend per share by more than 10%. Exxon, America’s largest energy company, raised its annual payout by nearly 6% per share. In an environment where profit growth on the S&P 500 may be plateauing, the fact that America’s two largest dividend-paying companies announced healthy dividend increases is, I believe, a healthy signal for the overall U.S. stock market. Of the top 20 dividend-paying companies in America, listed below, six typically raise their annual dividend payments during the quarter that will end on June 30. The good news is that five of those six already have done so. In addition to Apple and Exxon, Johnson & Johnson, Wells Fargo and Proctor & Gamble have all announced dividend increases in recent weeks. Only Chevron, contending with lower oil prices, has chosen to maintain its dividend at current levels. Top Twenty Largest Indicated Dividend Payers For definitions of terms in the chart, please visit our glossary. Dividend growth matters because, over time, it propels equity markets to higher levels. Today, roughly 88% of the weight in the S&P 500 Index is in dividend-paying stocks.1 Dividend-payers are not minor players in the market; these stocks are driving nearly 90% of the return of the U.S. stock market. How, then, are dividend payers progressing this year as a category with respect to their aggregate dividend growth? On November 30 of each year, WisdomTree identifies all the common stocks and real estate investment trusts (REITs) that pay regular cash dividends. Those that pass our market capitalization, liquidity and other selection requirements typically are included in the WisdomTree Dividend Index, the broadest measure of U.S. dividend-paying stocks. Last year, the more than 1,400 companies selected for inclusion in the WisdomTree Dividend Index were indicated to pay more than $410 billion in cash dividends for the coming year, based on their most recently declared dividend per share.2 As the table above demonstrates, of the 20 largest dividend payers in the U.S., 13 have already raised their dividend per share since the end of November. Overall, we estimate that the aggregate Dividend Stream® for all the companies in the WisdomTree Dividend Index increased 4% between November 30, 2014 and April 30, 2015. This suggests to me that aggregate dividend-per-share growth in the U.S. could once again approach double digits in 2015. This is a bullish sign for the market for two reasons. First, over the past 60 years, while the total return of the S&P has averaged about 10.5% on an annualized basis, aggregate dividend growth has compounded at roughly 5.5% per year.3 So 2015 is shaping up to be a year in which overall dividend growth will likely outpace its long-term average. Second, in a world of low and negative interest rates, higher aggregate dividends increase the floor upon which the U.S stock market can be valued. This will become particularly important should first-quarter share profits on the S&P 500 decline relative to the first quarter of 2014. If corporate executives are confident enough to keep increasing dividends during a period when earnings slow or contract, it may be a signal that they believe the current earnings lull is temporary. U.S. multinationals have been affected by unfavorable currency translations brought about by a stronger dollar over the last two quarters. The collapse in oil prices has also had a real impact on the earnings potential of U.S. energy producers. But at the same time, those hits, absorbed in the fourth quarter of 2014 and first quarter of 2015, also mean that the same companies will face much easier comparisons when they report earnings for those periods nine to 12 months from now. Put another way, a year from now, instead of worrying about a profit recession, the financial press may once again be reporting on resumed corporate earnings growth in the United States. If coupled with strong dividend growth, that would, I believe, lead to higher U.S. stock values nine to 12 months from now.         1Source: Bloomberg, 5/1/15. 2Source: WisdomTree, 11/30/14. 3Source: Robert Shiller, 12/31/1957‒3/31/2015.

Important Risks Related to this Article

Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time. Several WisdomTree Funds hold the companies mentioned in the article. Please visit wisdomtree.com for the Funds’ current holdings.

For more investing insights, check out our Economic & Market Outlook


About the Contributor
Chief Investment Strategist
Luciano Siracusano is WisdomTree’s Chief Investment Strategist. He is the co-creator, with CEO Jonathan Steinberg, of WisdomTree’s patented Indexing methodology. Mr. Siracusano led WisdomTree’s sales organization from October 2008 until June of 2015, while also serving as the firm’s Chief Investment Strategist. Luciano stepped down as WisdomTree’s Head of Sales in 2015 to focus full time on his duties as Chief Investment Strategist. From 2001 until October 2008, Luciano was WisdomTree’s Director of Research and was responsible for the creation and development of WisdomTree’s proprietary stock indexes. Luciano is a regular guest on CNBC and FOX Business, and speaks and writes frequently on ETFs, indexing and global financial markets. A former equity analyst at Value Line, Luciano began his career as a speechwriter for former New York Governor Mario Cuomo and HUD Secretary Henry Cisneros. He graduated from Columbia University with a B.A. in Political Science in 1987.