Will 2018 Be a Record Year for US Dividend Increases?

Some investment leaders from Franklin Equity Group explain why US tax reform and sectoral trends could lead more companies in select industries to raise dividends this year.

Since the passage of US tax reforms last December, many market observers have been waiting to see what US companies would do with the extra cash in their coffers. So far this year, dividend increases have been one way in which some of these companies have chosen to reward investors.

In the first three months of 2018, S&P 500 Index companies spent a record $109.2 billion on dividend payments.1 And, according to Franklin Equity Group’s analysis of S&P data, total dividends for companies in the index are projected to rise double digits this year for the first time since 2015, as the chart below shows.

Investment Implications

According to Franklin Equity Group’s Don Taylor, select companies in the industrials, materials and consumer discretionary sectors are likely to hike dividends in 2018. In March, he cited a reduction in the US corporate tax rate from 35% to 21% and a stronger global economy as reasons why.

As earnings and cash flow improve with economic growth, companies will keep a higher proportion of that money because of the lower tax rate. That, in turn, is likely to lead to higher nominal dividends.” – Don Taylor, March 2, 2018.

Don Taylor expects to see the same potential benefits for other stocks in domestic sectors that are sensitive to changes in the economy, such as banks, commercial services, retail and utilities.

That said, US tax reform and economic growth don’t seem to be the only factors that could lead to higher dividends this year.