April Tends To Be A Good Month For The Markets

Although the following chart shows that the best performing months are November and December, April is not bad either. The Chart of the Day details the monthly return for the Dow since 1950 (blue line) and 1980 (grey line). The old adage of sell in May and go away has historically been preceded by strong market returns in April.

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Source: Chart of the Day

CVS/Caremark Announces 23.1% Dividend Increase

Today, the new CVS/Caremark (CVS) announced a 23.1% increase in the company's second quarter dividend. The new quarterly dividend will equal 6 cents per share versus 4.875 cents per share in the first quarter. CVS raised the quarterly dividend in January from 3.875 cents per share. As a result, on a YOY basis (2Q to 2Q) the dividend increase is 54.8%.

Additionally, the company commenced the previously announced tender offer to purchase up to 150,000,000 shares, or about 10%, of its outstanding common stock at a price of $35.00 per share. The offer to purchase shares, which is not conditioned upon any minimum number of shares being tendered, commenced today and will expire at 12:00 midnight, New York City time on April 24, 2007, unless extended.

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Bears Less Bearish

Today's release of the American Association of Individual Investors Sentiment Survey shows a decline in bearishness. It appears the prior week's bearish voters are more neutral this week. As noted in prior posts, this indicator is a volatile one as well as a contrarian one. The percent bullish remains essentially unchanged.

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Source: American Association of Individual Investors

Dividend Aristocrats Performance as of 3 28 2007

The equity markets have been seeking a direction since the end of February. During days like today when the market trades down, the higher quality domestic equity portfolio has tended to outperform the broader market indices.

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As detailed in the performance summary below, the Dividend Aristocrats maintain a year to date performance edge over the broader large capitalization U.S. equity indices as of March 28, 2007.

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Abercrombie & Fitch Added To The S&P 500 Index

Today Standard & Poor's announced(pdf) that Abercrombie & Fitch (ANF) would be added to the S&P 500 Index after the close of trading on March 28, 2007. ANF will replace Univision Communications (UVN). Univision is being acquired by an investor group including Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group, Thomas H. Lee Partners and Saban Capital Group in a deal expected to close on or about that date, pending final approvals.

ANF is not a true dividend growth stock as the company's first dividend payment was the 1st quarter of 2004. Additionally, the company has not increased the dividend on every fifth quarter. On the other hand, the calendar year dividend has increased by 10 cents (approximately 16%) in each year since 2004.

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Dividend Aristocrats Performance Update

I took a few days off from blogging last week and the markets experienced a nice rebound. Not sure if there is a message in this or not. Last week, the Dividend Aristocrats portfolio gave up some ground to the general market. In looking at the holdings detail below, the one week return for the Aristocrats totals .70%. This compares to the Nasdaq return of 1.20% and the S&P 500 return of 1.30%. However, on a year to date basis the Aristocrats portfolio has generated a return of 1.40% versus a Nasdaq return of .90% and S&P 500 Index return of .70%.

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Standard and Poor's Adds Kraft to the S&P 500 Index

After the close of trading on March 30, 2007, S&P has announced Kraft (KFT) will replace Sabre Holdings (TSG) in the S&P 500 Index. KFT is being spun out from Altria Group.

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Source: Standard and Poor's

Bullish Sentiment Jumped Last Week

American Association of Individual Investors Sentiment Survey showed a jump in bullishness to bullish to43.88% versus the prior week's 32.99%. The increase in bullishness came at the expense of a decline in bearishness to 33.09% versus the prior week's 45.36%.

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Source: American Association of Individual Investors

Short Break

I will be taking a few days off from blogging until Sunday, March 25, 2007. Until then, following are a few links that might be of interest:

• At the American Association of Individual Investors website: Four Basic Steps to Gauging a Firm's True Financial Position by Jay Taparia, CFA

• Secular Bull and Bear Markets Profile by Crestmont Research. An annotated version of the chart can be found here.

• Trend Macrolytics published an article at Smart Money, The Signs Point to a Correction, Not a Bear Market by Donald Luskin.

• Optionetics Weekly Outlook by Chris Tyler for March 19, 2007 notes: "In light of the recent bearish extremes and patterns in place, bullish opportunities do appear close at hand."

• Geoff Gannon from Gannon On Investing lists headlines and links from Value Investing News

Dividend Rate on S&P 500 for 2007 Increased by S&P

Today, Standard & Poor's announced they were increasing the indicated dividend rate on the S&P 500 Index to $26.55 from $25.10. S&P estimates companies in the 500 will pay out $27.85 per share in 2007 versus $24.88 in 2006 and $22.22 in 2005. This represents a 11.9% increase in the dividend payment. Additionally, aggregate payments would total $252 billion in 2007 versus $222 billion in 2006.

As I noted in my post the other day regarding dividends and buybacks (click here) there is concern about the magnitude of buybacks. S&P notes:

“We are concerned that the large expenditures on buybacks may be inhibiting dividend growth,” continues Silverblatt. “While Standard & Poor’s has yet to see a significant decline in the number of dividend increases, the lack of increases, as well as the absence of new initiations, speaks to the current climate of buyback preference.”

Silverblatt points out that the tendency for index issues to pay and increase cash dividends is much greater than that of the general market as 77% of the S&P 500 constituents pay cash dividends versus just 40% for the non-S&P 500 companies. For 2007, Silverblatt estimates that over 60% of the S&P 500 will increase their dividend payout compared to just 30% for non-S&P 500 companies.

Upcoming Dividend Actions

Following is a list of S&P's Dividend Aristocrats that have dividend report dates through the second quarter. Historically, on these report dates the company would announce a dividend increase.

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Source: Standard & Poor's

Dividend Aristocrats Performance 3.16.2007

Over the course of the last four weeks, the U.S. equity markets gave up all the year to date gain that had been achieved until the last week of February. Although the Dividend Aristocrats have not been immune to this market pullback, they continue to outperform the S&P 500 Index, the Dow Jones Industrial Average and the NASDAQ Index.

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Dividend Aristocrat performance as of market close on 3.16.2007:

Stock Buybacks and Dividend Payments Remain Strong

Yesterday, Standard & Poor's issued a press release noting "S&P 500 4th Quarter Buybacks Remain Strong at $105 billion. Included in the release is the absolute dollar amounts of dividend and stock buybacks paid out by S&P 500 companies since 2001. When looking at the dividend payouts and stock buybacks combined, the so called dividend and buyback yield as of 12/31/2006 is 5.15%. This compares to the dividend & buyback yield of 2.63% as of 3/31/2001.

• reported earnings have grown at a compound annual rate of 14.2% since the beginning of 2001.

• the dividend growth rate has grown at a 10.6% rate.

• buybacks have increased at a 22% rate over the six year time span 2001-2006.

• As detailed on the chart below, the dividend payments/stock buybacks have grown at nearly the same rate as reported earnings.
  

One piece of data that can be deduced from the data in the press release is that S&P 500 companies have returned 85% of reported earnings to shareholders via dividends and/or stock buybacks since the end of 2000. From a dividend growth perspective, these buybacks are not long term payment commitments versus increasing and ongoing dividend payments. By not committing to longer term payments, what does this imply about a company's view of its own prospective growth opportunities? On the other hand, S&P notes "the impact of share count reduction on earnings per share was lower during the fourth quarter as more companies used the extra shares on hand for M&A activity and stock options." M&A activity certainly would be more positive than buybacks instituted to offset option dilution.

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Data Source: Standard & Poor's

As noted in prior posts, the dividend payout ratio for the S&P 500 is running at near record lows. It would be nice to see some of the buyback cash diverted to dividend payments so as to project confidence in a company's longer term business prospects.

Pre-Election Year Returns Update

Chart of the Day provides the following update for the Dow Jones Industrial Average pre-election year returns. Will history repeat itself?

"Today's chart illustrates how the stock market has performed during the average pre-election year. Since 1900, the stock market has tended to outperform during the first six to seven months of the average pre-election year. For the remainder of the year, pre-election performance has tended to be choppy. This pre-election year has, for the most part (the main exception being the Shanghai surprise of late February), been true to form."

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Source: Chart of the Day

Air Products & Chemicals Raises Dividend 11.8%

Air Products & Chemicals (APD) announced an 11.8% increase in the company's second quarter cash dividend to 38 cents per share versus 34 cents per share in the same quarter last year.

• In 2006, the company's dividend increase was only 6%.

• The five year average dividend growth rate is 13%
  

• The dividend yield on the new dividend rate increases to 2.07% versus the prior yield of 1.86%.

• The payout ratio on 2007 estimated earnings of $4.11 equals 36%. The five year average payout ratio equals 37%.
  

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Bullish Sentiment Declines Again

The American Association of Individual Investors Sentiment Survey released today shows a further decline in investor bullishness. The percent of investors that are bullish on the market, looking out six months, declined to 32.99% from 35.80% last week.

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Source: American Association of Individual Investors

Wm. Wrigley Jr. Co. to Raise Prices 10%

Today Wm. Wrigley Jr. Co. (WWY), a Dividend Aristocrat, announced it was raising prices in the U.S. by an average of 10%. As the news was announced early this afternoon, the stock began moving higher as noted in the 1-day chart below. Wrigley was the top performing aristocrat today.

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On a longer term basis, WWY stock price has struggled to keep pace with the general market, but with a new CEO, maybe this is the stimulus the company needed.

Wrigley is a dividend aristocrat and patient investors have collected increasing dividends as the company is likely transitioning into a brighter earnings future.

Red-Letter-Day In The Market

Only one industry group generated a positive return today. I presume it is appropriate the group was the Travel and Tourism Industry. Today would have been a good day to take a vacation. This industry group achieved a .03% positive return.

S&P's Dividend Aristocrats were essentially down in line with the major domestic indices as well today. Though, on a year to date basis the Aristocrats are down only -1.40%.

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Qualcomm Announces 16.7% Dividend Increase

Qualcomm (QCOM) is not a true dividend growth equity since dividends were just initiated in the first quarter of 2004. However, today the company announced a 16.7% increase in the company's dividend to be paid in the second quarter. The new quarterly dividend will equal 14 cents per share versus 12 cents per share in the same quarter last year. The S&P Earnings and Dividend Ranking is B.

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Another REIT added to the S&P 500 Index

Today, Standard & Poor's announced Host Hotels and Resorts (HST) will be added to the S&P 500 Index at a date to be announced later. HST will replace Phelps Dodge (PD) as PD is being acquired by Freeport-McMoRan Cooper and Gold Inc. (FCX). HST will be the thirteenth REIT added to the S&P 500 as noted in an earlier blog post. The FCX/PD deal still needs to be approved.

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Source: Standard & Poor's