More companies are increasing their dividends as 2011 gets started.
Many have predicted 2011 to be the year of mergers and acquisitions but so far it’s more about giving cash back to investors. According to the Wall Street Journal, using data from Standard & Poor’s, 17 companies have increased their dividends. And there are many more to come, as it is expected that about two thirds of companies in the S&P index will increase dividends this year.
This is consistent with a fall 2010 survey of The NeuGroup’s Treasurers’ Group of Thirty (T30), which revealed that the most likely use of proceeds was split between distributing cash via share buybacks and investing in the business through acquisitions or strategic growth. Up to now there has been no real certainty as to what management or shareholders should do with their excess cash.
Now it seems that boosting confidence among investors by increasing dividends appears to be the winning proposition. Companies such as CVS Caremark, Family Dollar Stores, and Schlumberger have increased their dividends recently and others like Eaton Corp. and Praxair are expected to follow suit soon. Intel also may increase its dividend after it reportedly increased its stock buyback program by $10bn (it previously had been $4bn).
Nonetheless, there will be plenty left over for acquisitions. According to Bloomberg and Goldman Sachs, companies are holding more than $1tn in cash, “the most ever relative to the value of their assets, after earnings beat estimates for six straight quarters.” And 2010 ended with a surge in M&A, with a slew of companies including the likes of Wal-Mart ($2.3bn for Massmart Holdings), Novell ($2.2 billion for Attachmate Corporation) and Google, which did 25 acquisitions in 2010 – two deals a week.