Corporate Profits, Cash Flow and Dividends

CORPORATE PROFITS, CASH FLOW AND DIVIDENDS

The Federal Reserve provides data on combined private and public company profits, cash flow and dividends, shown in this chart.  Profits and cash flow are well above pre-2008 levels and dividends are nearly fully recovered.  Finances look good in the corporate world.

Looking only at dividends in investable ETFs, these charts from YCharts.com show the percentage change in dividends paid on IWB (for the Russell 1000 large-cap stocks) and IWM (for the Russell 2000 small-cap stocks) over 10 years, 5 years and 1 year.

10-years

5 Years

1 Year

The small-cap stocks have much lower current yields, but have increased their dividends (from low starting points) at a significantly faster rate than large-cap stocks.  Both large-cap and small-cap dividends rose over each period, but 1000 large-cap companies lagged inflation over the 5-year period (some selectivity could have eliminated that problem).

TEN-YEAR INDEXED HISTORY OF S&P 50o SECTOR ETFs

  • XLB: basic materials
  • XLE: Energy
  • XLF: financials

  • XLI: industrials
  • XLK: technology and telecommunications
  • XLP: consumer staples

  • XLU: utilities
  • XLV: healthcare
  • XLY: consumer cyclicals

Five of the nine sectors had dividend growth over 50% in the past 5 years:  energy, technology and telecomm, healthcare and staples.  The big drag were the financials, down 73%.  At one point before the crash, they accounted for a very significant portion of total dividends paid by the S&P 500

TEN-YEAR INDEXED HISTORY OF S&P 50o MARKET-CAP ETFs

  • SPY: S&P 500 large-cap
  • MDY: S&P 400 mid-cap
  • IJR: S&P 600 small-cap

  • SDY: S&P 1500 Dividend Aristocrats
  • OEF: S&P 100
  • ISI: S&P 1500

Note that the S&P 1500 Dividend Aristocrats have experienced a reduction of 17% in dividends paid over the past 5 years. This is the result of two factors. First, banks which were historically members of the Aristocrats index, were virtually all eliminated in the 2008.  They were substantial dividend payers, and were replaced on average with stocks with lower yields.  Second, the nature of the Aristocrats index is not yield focused, but rather is focused on dividend payment consistency.  The index requires 25 years of back-to-back dividend payments without missing any, and increasing each year.  That rule does not necessarily lead to higher yields, and when former high yielding payers like banks dropped out, their replacements while consistent did not pay as much.

FOUR LEADING DIVIDEND ETFs

  • SDY: S&P 1500 Dividend Aristocrats (sponsor SPDR) trailing yield 3.14%
  • DVY: Dow Jones Select Dividend (sponsor iShares) trailing yield 3.41%
  • VYM: FTSE High Dividend Yield “Vanguard High Dividend” (sponsor Vanguard) trailing yield 2.79%
  • VIG: Mergent Dividend Achievers Select “Vanguard Dividend Appreciation” (sponsor Vanguard) trailing yield 2.05%

Disclaimer and Disclosure:

This and every post on this blog is subject to our general disclaimer.  As of the date of this post (September 4, 2012), we have positions in IWM.

 

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