As the fourth-quarter earnings reports flood in, there is a wave of positive dividend change announcements, reflecting a brighter sentiment despite macro uncertainties. The total profits for companies seem to have remained steady compared to 2022. The macroeconomic climate had its challenges with rising interest rates, looming inflation, and pessimistic forecasts of a US recession. Moreover, subdued growth in Europe and soft indicators in China clouded the global economy. Yet, companies have persevered and rewarded their shareholders.
Notably, the early months of 2024 are showing an increased number of dividend hikes relative to cuts, with the strongest ratio of dividend increases to decreases since the first quarter of 2018. This pattern aligns with the narrative that companies aim to kick off the new year on an optimistic note.
A Bullish Dividend Increase-to-Decrease Ratio
According to data from Wall Street Horizon, among 10,000 companies worldwide, 31% have announced a dividend increase, while only 8% have slashed their payout. This better-than-4:1 ratio of increases to decreases is a positive sign, and if the decreases drop below 7%, it will mark the lowest quarterly percentage in over 6 years.
However, with the back half of earnings season being more focused on non-US companies and smaller firms, the ratio may face shifts amid ongoing uncertainty. Vigilance is required to monitor this trend.
Dividend Change Announcements Since 2018: A 4:1 Increase to Decrease Ratio
Source: Wall Street Horizon
The early surge in dividend increases strengthens the backdrop of better-than-expected US real GDP growth in the last quarter and a decline in inflation to the Fed’s 2% target. It serves as a reminder that while the macroeconomic landscape is crucial, many of the world’s biggest companies can deliver profits and cash flow while rewarding shareholders through dividends and buybacks.
A Better Consumer Tone
This positive dividend outlook coincides with more upbeat consumer sentiment, as indicated by recent surveys. Despite concerns about the economy, strong retail sales throughout last year and positive real wage growth have supported consumer spending and overall optimism.
Stock Splits: Where Have You Gone?
Another trend being observed is the pattern of stock splits in 2024 compared to the surge seen in 2021 through mid-2022. While there may not be a resurgence of traditional stock splits, Walmart’s recent 3:1 split announcement has raised interest. This move may stir speculation about a new wave of split activity, reflecting the company’s aim to enhance shareholder value.
A Big Month for a Big Retailer
Walmart’s upcoming Q4 figures and conference call will be crucial, especially as it spans the holiday shopping period. The company’s actions and performance will likely set the tone for the retail sector in the months ahead.
Strong Spending, Strong Profits, Higher Dividends?
The robust holiday spending reported by the National Retail Federation, despite challenging macro conditions, has significantly contributed to companies’ profits. This trend may underpin the positive dividend story.
The Bottom Line
As we venture further into 2024, with a flurry of earnings reports and positive developments on the dividend front, the near-record-high ratio of dividend increases to decreases is indeed heartening. It may indicate a firm belief among CEOs and CFOs in rewarding shareholders. Furthermore, the possibility of Walmart’s stock split heralding a new wave of activity keeps the markets on their toes.