Wall Street is Throwing Cash at Investors Like Never Before

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With the help of low interest rates and record corporate earnings, Wall Street is awash in cash. While a large amount of cash simply sits on balance sheets, many companies are returning capital to investors by issuing dividends and conducting share repurchases at a record pace.

Dividends continue to gain popularity with companies and investors. In the first quarter of 2014, there were 1,078 dividend increases reported by domestic companies, topping the record of 1,069 set in 1979, according to data from S&P Dow Jones Indices. Overall, dividend net increases totaled $17.8 billion. Of the approximately 10,000 U.S. traded issues, only 102 companies lowered dividends in the first three months of the year, representing a 27 percent improvement from the 139 reductions seen a year earlier.

“U.S. domestic common issues set a first quarter record for dividend increases, as the ‘shareholder’ return theme continued. Increases have been made easier by record earnings and record cash holdings,” explained Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “Additionally, many issues (especially large-caps) have heard the knocking at the boardroom door – from activists. I expect strong dividend growth to continue in 2014, as ‘shareholder return’ continues to be the battle cry from boardrooms, and those knocking at the boardroom door. I expect the actual cash payments for 2014 to post a double-digit increase over the record setting 2013 level.”

Dividends play an important role for many investors. They can provide a stable source of cash flow that exceeds the rate on bonds or savings accounts, and also help investors lock in returns through years of stable payments. Dividends are also becoming a standard in America’s largest companies. Within the S&P 500 (NYSE:SPY), 421 companies (84.2 percent) currently pay a dividend, the most since September 1998. Meanwhile, all thirty members of the Dow Jones Industrial Average (NYSE:DIA) pay a dividend.

In addition to dividends, corporations are spending billions on share buyback programs. S&P Dow Jones Indices reports that repurchases in the S&P 500 totaled $475.6 billion in 2013, up 19.2 percent from the $398.9 billion spent in 2012. Looking forward, a recent report from Goldman Sachs estimates that S&P 500 companies will return $1 trillion to shareholders in 2014 via dividends and share repurchases.

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