NEW YORK – 2006 is likely to reward careful stock pickers who seek the steady income of dividends.
According to Standard and Poor's, the number of dividend increases in 2005 was 9.2% higher than the average going back 10 years. If corporate profits remain healthy, this year could be even better.
Media attention in 2005 focused on how corporations would disgorge the cash built up from profits they enjoyed in the latter stages of an economic expansion. Many answered by paying out dividends. There were 1,949 dividend increases in 2005, nearly 12% more than in 2004 and a total not seen since 1999.
Bank of America (BAC), for example, increased its quarterly dividend by 5 cents, or 11% a share. At Monday's closing price, this translates into a yield of 4.3%, much higher than most stocks.
Paper products maker Kimberly-Clark (KMB) raised its dividend 5 cents, or 12.5%, to a yield of 3.3%.
"If the economy and corporate profits continue to show strength, which we think they will, it is likely that we will see more than 2,000 dividend increases in 2006," said Joseph Lisanti, editor of Standard and Poor's newsletter The Outlook.
Supporting this view, Chip Dickson, a portfolio strategist with Lehman Brothers, expects earnings per share to continue growing in 2006 as the S&P 500 Index rises to 1,400 from a 2005 close of 1,268.
Investors seeking diversity can buy mutual funds that focus on high-yield stocks. Alternatively, there are exchange-traded funds that also focus on dividend-paying stocks, including the streetTRACKS SPDR Dividend ETF (SDY), composed of stocks that have increased their dividends for at least 25 consecutive years such as Johnson & Johnson (JNJ), Anheuser-Busch (BUD) and General Electric (GE) .