Dividends Could Send the Dow Soaring in 2014

Dividend stocks are still incredibly popular, and more dividend increases happened in 2013 than in any previous year. Find out all the dividend details here.

Jan 9, 2014 at 12:31PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The stock market is behaving badly today, with pessimists continuing to rule the roost in the young new year. At 12:30 p.m. EST, the Dow Jones Industrials (DJINDICES:^DJI) were down about 40 points, bringing their year-to-date drop to almost 1%. Yet in light of the Dow's jump of 26.5% in 2013, that pullback is inconsequential -- and the strength of dividend-paying stocks both within and outside the Dow has a lot to do with the market's gains in 2013.

How dividends sent the market soaring in 2013
As it does every quarter, the S&P Dow Jones Indices recently released its latest report [opens PDF] on the state of dividends in the U.S. stock market. Looking at 2013's figures, you'll find that 2013 was the best year on record for the number of companies raising their dividend payouts. Fully 2,895 stocks saw better dividends in 2013, topping 2012's slightly lower total of 2,887 and well exceeding the 299 stocks that made dividend cuts last year.

From a cash perspective, 2013 was also a successful year for dividend stocks. The $54.6 billion in dividend increases in 2013 topped 2012's $50.4 billion, although a reduction in the amount of money made in initial dividends brought the total change in payouts down from the previous year. Dividend reductions and suspensions, meanwhile, shrank more than $200 million in 2013 compared to 2012.

Can 2014 be another banner year?
Already, we've seen some truly huge dividend moves within the Dow. 3M (NYSE:MMM) said last month that it would raise its dividend for the first quarter of 2014 by 35%, giving shareholders $0.855 per share in quarterly payouts, and would also boost its stock buyback program. Boeing (NYSE:BA) went even further, pushing the dividend payout up more than 50% to give investors $0.73 per share every quarter. Even Pfizer's (NYSE:PFE) more modest 8% jump in its quarterly payout, from $0.24 to $0.26 per share, indicates optimism about its overall future prospects, including plans to restructure operations into discrete business divisions in order to emphasize its highest-priority projects.

Many investors remain optimistic about 2014's dividend prospects. As S&P Dow Jones Indices senior index analyst Howard Silverblatt noted in the report, "we expect Q1 [2014] to be a very busy positive period for dividends, with 2014 setting another record for payments." Silverblatt noted the continued low level of payouts compared to corporate earnings, with payout ratios of 36% falling well below the 52% historical average.

Investors should continue to look to dividends to provide a substantial part of the overall total return on their investments. Even in blockbuster years like 2013, the added bonus of dividend income is useful in providing liquidity for those who need to generate cash from their investments.

Why dividend stocks are worth looking at so closely
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends 3M. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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