Bigger Dividends Coming for S&P 500

Record earnings fueled by the highest profit margins since 1993 are giving executives more leeway than ever to boost dividends as the bull market enters its third year. Margins will climb to 8.9 percent in 2011, the highest level in at least 18 years, according to data compiled by Bloomberg on non-financial companies in the Standard & Poor’s 500 Index through March 11. Greater profitability combined with dividend cuts during the credit crisis have pushed earnings to 6.53 percent of the gauge’s price, or 3.5 times more than its payout rate, close to the record 3.6 multiple in January.

“The big multinational, big dividend payers continue to be where the value is,” Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York, said last week in a Bloomberg Television interview. He owns Wal-Mart shares and said he would “absolutely” buy more, “given the cash generation they do, the dividends they are going to be paying in the future, the kinds of things they’re doing for shareholders.”

Source: Bloomberg

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