NCPA - National Center for Policy Analysis

Dividends on the Rise

January 3, 2003

The number of American companies announcing increased payouts to shareholders, or dividend increases, rose 7.5 percent in 2002 -- the first annual increase since 1996. The increasing popularity of dividends may reflect investors' anticipation that the Bush administration will push for and achieve tax changes that will include elimination of the double taxation of dividends. Under the current system, profits are taxed at the corporate level, then taxed again at the individual level when they are handed out as dividends.

Economists have pointed out that not only is the tax system unfair to investors, it probably encouraged corporations to emphasize capital gains -- which, in turn, may have prompted the misbehavior of some corporate chiefs in recent years.

Analysts explain that the bear market has been far harder on companies not paying dividends than on those that did. They say investors are becoming more interested in receiving dividends -- rather than just being concerned with the value of their stocks.

According to Standard & Poor's:

  • There were 1,425 announcements of dividends increases in 2002 -- up from 1,326 the previous year.
  • At the same time, dividend reductions or omissions declined last year by 34.1 percent -- to 135 from 205, after rising in the previous year.
  • The trend was most visible in December, when 150 increases were announced -- up from 121 in December 2001.

Dividend payouts have been declining since 1996, as companies adopted share-buyback strategies to boost capital gains.

Source: Floyd Norris, "Reversing Trend, Number of Dividend Increases Grows," New York Times, January 3, 2003.


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