Higher earnings are creating a dividend windfall

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% this year, the highest level in at least 18 years, according to data compiled by Bloomberg through March 11 on non-financial companies in the S&P 500.

Greater profitability, combined with dividend cuts during the credit crisis, have pushed earnings to 6.53% of the gauge's price, or 3.5 times more than its payout rate, close to the record 3.6 multiple in January. “The economy seems to be doing well, and earnings are on the recovery path, which companies wanted to be sure about before they raised their dividends,” said John Carey, a money manager at Pioneer Investments, which oversees about $250 billion. “I feel relatively confident that most of the dividends out there are secure, and we'll see some fairly broad-based increases.”

Source: Investment News

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