After the financial crisis, investors are no doubt weary about putting a significant chunk of their funds back into the market.
So in order to get them back into the game, companies are hiking dividends all over the place, a trend we’ve noticed in recent weeks.
Citi: After two 50%+ declines in the past decade, the individual investor may need to see some upfront money in the form of increased dividends to get attracted once again to the allure of equities. As a reminder, the dividend yield was above the Treasury bond yield for years after the Great Depression and dividends historically have provided about half of stock market returns.
With ageing demographics, one could assume a new dividend trend may have to emerge to compete with fixed income products as investor demand some upfront money and not just long-term appreciation potential.
In the past, investors have used cash for stock repurchases, dividends and capital investment as well as deals, and one wonders what the next step will be in a post credit crisis world. In many respects, the cash flow yield of the S&P 500 is back above that of the junk bond yield that would generally finance leveraged transactions, and this seems true across most sectors.