Deutsche Bank says a strategy of investing in companies positioned to raise dividends typically outperforms by 8 percent on average.
And because companies are increasingly sharing their record cash hoard with investors, that trend should accelerate with a new wave of increased dividends and buybacks this quarter, the investment bank says.
Deutsche Bank Chief U.S. strategist Binky Chadha noted that corporations built up cash as they fired workers and pared costs and inventories during the recession. As a result, their cash flow is now at very high levels.
"It's a typical reaction in a typical recession,” Chadha told CNBC. “They basically want to hold onto their cash because there's lot of uncertainty and lots of concern.”
Excluding financial companies, gross payouts for the S&P 500 rose by 56 percent in the fourth versus second quarter, and another $150 billion — half of last year's retained cash — will be spent on payouts and capital.
Though firms in the financial sector have the most excess cash, they are unlikely to restore or raise dividends any time soon, given regulatory uncertainty, the bank report notes.
Better to look for dividend increases in healthcare, industrials, consumer discretionary and tech sectors.
Standard & Poor's said Monday that the number of companies that cut dividend payments in the first quarter fell dramatically from the same period last year.
Of the 7,000 companies tracked by S&P, 48 lowered their dividend payments for the first quarter. That compares to 367 companies that cut dividends in the first quarter of 2009 — an all-time high.
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