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Record Dividends in 2012 Should Help Consumers

January 5, 2012 — The Wall Street Journal — By Kathleen Madigan    Bookmark and Share

The dividend checks are in the mail.

S&P Indices reported Wednesday that dividend increases reached $50.2 billion in 2011, up sharply from the $26.5 billion reported in 2010. In addition, S&P expects dividend payments to set a new record in 2012, surpassing the old high set in mid-2008 before the financial collapse and recession caused companies to cut back on payouts.

The expected increases in dividends are important to the consumer outlook because dividends have been one of the fastest-growing segments of personal income.

Since the recession ended, dividend income has shot up 43%, while total personal income increased less than 10%, according to Bureau of Economic Analysis data. Wage and salary disbursements have crept up only 6.6%. The growth leader has been farm income, up almost 52%.

Looked at another way, dividends comprise about 6% of personal income but they have accounted for 21% of income’s growth since June 2009.

Of course, dividends are a concentrated income source. Many dividends are reinvested in stock and retirement portfolios. Only about 20% of taxpayers report dividend income. Not surprisingly, wealthier households are more likely to report dividends than lower-income taxpayers.

The payouts, however, are critical to retirees. According to Internal Revenue Service data, about half of taxable dividend income was reported by taxpayers aged 65 or older. The dividend gain also helps to offset the drop in interest income savers have had to endure since the Federal Reserve cut short-term rates to near zero.

Right now, U.S. businesses are sitting on tons of cash while the household sector is still under financial stress. As the S&P report said, “companies have strong cash-flow and cash reserves giving them considerable room to increase payments.”

Dividends are a way for the business sector to transfer money to the consumer sector. The economy benefits because consumers are more likely to spend the income while companies have been holding back.

Of course, a better way to shift the money around would be through paychecks. But the U.S. economy is still waiting for a hiring boom. Increased dividends are better than nothing.