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Article from Josh Peters over at M*:
http://news.morningstar.com/articlenet/a...?id=760445
Uploading as PDF incase it gets lost at M*:
Is the Golden Era of Dividend Growth Over?.pdf (Size: 765.52 KB / Downloads: 14)
Cheers!
Rob
There are people who use up their entire lives making money so they can enjoy the lives they have entirely used up
Frederick Buechner
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Good article. He examines rising profits, expanding payout ratios, share buybacks, etc. I do agree that the energy sector hurt dividend growth rates here in 2016, but energy is cyclical and will probably be doing great in 5-10 years.
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Rob, thanks for posting that pdf here. It will eventually disappear from M*'s web site and it's a good article to review now & then.
I was wondering when we were going to get to this point. I could see it with some of my holdings. For me, I tried to diversify a little as far as yield, payout ratio and DGR although it wasn't a primary consideration when planning out our portfolios. As long as I can maintain a portfolio wide dividend growth rate above 6% annually, as set in my portfolio business plan, I won't be too concerned. If it drops below that for a couple years in a row, then I might become more concerned but as of now, I'm content to watch.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
The business cycle is nearing its peak which means earnings growth is starting and will continue to slow. This is nothing new, I'm sure similar articles could have been published as other business cycles peaked.
The DGI strategy has worked for decades and the markets have seen pretty much everything over that time period. There have been periods of high dividend growth, low dividend growth, dividend cuts, etc. Over a 25-30 year time horizon all of these events will balance out.
I would like to see a counterpoint from one of the prominent DGI authors on SA.
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I think the title is a bit sensational but I can't argue with anything he says. It seems many of the companies I follow in my sector spreadsheets are seeing slowing dividend growth, with the industrials, large cap consumer staples, segments of consumer discretionary, and energy companies being the ones that come immediately to mind. I would say this is more an effect of where we are in the business cycle rather than calling it the end of an era.
We saw earnings grow quickly coming out of the recession but that has now leveled off and growth has slowed. A crash in crude oil prices has caused industrial spending to slow which weakens dividend growth for energy companies and the industrials. A strong dollar has also taken a big bite out of earnings from international companies which has led to slowing growth for KO, PG, KMB, PM and the like.
It seems that the utilities have seen a bit stronger dividend growth in recent years, and the healthcare sector also seems to be doing okay, along with portions of tech.
So overall, I agree with the overall premise that dividend growth is slowing, but I don't think the sky is falling by any means.
It doesn't take much to recognize that most good stocks are overvalued, supported with Josh's take. So does that mean we should look to other choices? For me, No. Rather its time to sit on cash, if you have it, and be more selective on when to make purchases. The market goes up & down and hopefully we'll see a correction giving one the opportunity to get a higher yield thereby offsetting the potential lower growth rates.
