Unexpectedly Intriguing!
March 14, 2012

On 13 March 2012, the S&P jumped upward by nearly 2%, rising by 24.86 points to 1395.95, mainly on the news that the Federal Reserve was giving a passing grade to 15 of the 19 largest banks in the United States.

Morningstar: WFC 13 March 2012

What makes this more than just a noise event was the subsequent action taken by Wells Fargo (NYSE: WFC to almost double the amount of its quarterly dividend for the first quarter of 2012, increasing it from 10 cents per share to 22 cents per share. The Federal Reserve's announcement at 3:00 PM EDT had essentially opened the door to allow Wells Fargo to act upon what were previously whispered rumors.

Because Wells Fargo is currently the 12th largest component of the S&P 500, the company's market capitalization weighted dividend increase has a significant effect upon the expected dividends for the entire index.

In our first chart, we can see the impact of WFC's dividend increase through all the dividend futures we have available through the first quarter of 2013. These are the expected trailing year dividends per share for the S&P 500 through 15 March 2013:

Expected Future Trailing Year Dividends per Share for the S&P 500, 14 March 2012

Our next chart shows the amount of dividends per share that have been recorded since the first quarter of 2009 through the fourth quarter of 2011, and also investors now believe that the publicly traded companies of the S&P 500 will pay out for each quarter through the first quarter of 2013:

S&P 500 Quarterly  Dividends per Share, 2009-Q1 Through 2011-Q4, with Expected Future Dividends per Share Through 2013Q1

And, for good measure, our final chart add S&P's historic quarterly dividend data going back to the first quarter of 1988:

S&P 500 Quarterly  Dividends per Share, 1988-Q1 Through 2011-Q4, with Expected Future Dividends per Share Through 2013Q1

One important thing to note in this this last chart is that the current period, since the recession was declared to have ended in June 2009, also marks a period of essentially jobless recovery.

In previous periods, such jobless recoveries coincide with flat levels of dividends per share, but in the current post-recession period, we've seen rising levels of dividends per share.

This is largely a consequence of the nature of the fiscal crisis that accompanied the recession, where the U.S. Treasury and Federal Reserve forced the nation's largest banks to cut their dividends to extremely low levels in the latter portion of 2008 and early in 2009 for the sake of trying to preserve the solvency of the most troubled large banks. Instead of making payments to stockholders, the banks instead built up their reserves.

The action by the U.S. Treasury and the Federal Reserve forced otherwise healthy large banks to also cut their dividends to build up their reserves, which was done in an attempt to prevent the outright failure of the much more troubled institutions by hiding which were in direct and immediate danger of failing, making it appear that all were at a similar level of distress.

As U.S. banks have seen their fortunes improve in the period since, the federal government and Federal Reserve has allowed a number of banks to increase their dividend payments to stockholders. A very good portion of the rise in dividends seen since the fourth quarter of 2010 may be attributed to banks being allowed to turn their dividends back on, rather than an improving economic environment.

And that's how we can have a jobless recovery *and* rising dividends. If the healthiest large banks in the U.S. had been free to set their own dividend payments during this period, we would very likely see the same flat level for dividends that accompanied other jobless recoveries.

Labels: ,

About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Stock Charts and News

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links

Useful Election Data
Charities We Support
Shopping Guides
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.