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Wednesday, September 2, 2009

Q2 Growth Report - Part 2

Earnings or dividends: which is more important? Which provides more of a clue to the outlook for this market?

Earlier this week I released the first part of this series entitled "Q2 Growth Report - Part 1". In that post I presented some of the data compiled by our Alert HQ processes. The focus was on Revenue and EPS. I contrasted 2009 Q1 results with our recent Q2 results. In this post, I'll do the same with dividends.

For today's purposes, I'll highlight the companies that managed to increase dividends this quarter.

The following table provides the comparison between the two quarters:

In S&P 500140112
All stocks829778

The number of stocks in the S&P 500 that increased their dividend and have made it onto Part 2 the Q2 Growth Report has decreased by 28. At first glance that doesn’t seem too bad but actually that corresponds to a 20% decline.

Similarly, looking at the entire stock market, the number of stocks that raised dividends in Q2 dropped by 51 as compared to Q1. That amounts to a 6% decline.

This data is not as bullish as the data presented in the Growth Report - Part 1. It is clear that in Q2 companies still felt pressured to preserve cash and they opted for maintaining their dividend at current levels or even reducing dividends.

Repeat winners --

Note that there are 516 stocks that qualified for this report in both quarters. These are the real dividend growers but unfortunately there are too many to list here; therefore, I have listed them in the spreadsheet that contains the detailed lists from which the table above was derived. You can download the dividend spreadsheet by clicking on this link.

The Growth Elite –

The stocks in the following table were obtained by looking for those that were included in the both types of Growth Report for both quarters.


Conclusion –

In Part 1 of the Growth Report we saw some signs of strength returning to the market as the number of stocks with increasing revenues and EPS grew significantly.

The situation with dividends, however, is a different story. The comparison of Q2 to Q1 for the S&P 500 no doubt suffers because the S&P 500 contains a large number of financial stocks, some of which were so stressed they had to eliminate or reduce dividends in order to preserve cash, offset plunging earnings and bolster capital.

Looking at the market as a whole, the decline in the number of stocks that raised dividends was much more mild. That’s about the best I can do to spin this information in a positive way. It makes the stocks that qualified for today’s list that much more remarkable.

In terms of what today's report says about this market, it is a mixed message. The Growth Report tends to highlight two kinds of stocks:
  • Companies that have the classic kind of growth/momentum story based on rising revenue and earnings (Part 1)
  • Those "steady as she goes" companies that generate cash and return it to shareholders in the form of dividends (Part 2)
It is not a necessary condition for a bull market that both kinds of companies march in lockstep. The fact that the number of companies that are raising dividends is lagging is less of a concern as we attempt to recover from a bear market. What you want to see at the bottom of a bear market is the return of growth. The fact that we have an expanding cadre of companies that are growing revenues and earnings seems, at this point in the market's recovery, to be a more significant and needed development.

This is not to say that companies that pay dividends are not worthy investments. Indeed, today's lists may bring to your attention some solid companies that are well positioned to take advantage of the recovery.

Remember, you can download the dividend spreadsheet that lists all the individual stocks that qualified for the Growth Report - Part 2 by clicking on this link. And you can also click this link to download a spreadsheet that lists all the individual stocks that qualified for Part 1 of the Q2 Growth Report.

Disclosure: no positions

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