US corporations will hike dividends to meet the retirement income demands of the baby boom generation as it enters retirement according to Legg Mason subsidiary ClearBridge Advisors.

ClearBridge Advisors managing director, Peter Vanderlee, said: “There are around 76 million baby boomers  about to retire and they are doing so with insufficient savings. In addition, institutional investors such as pension plans, foundations and endowments are increasingly looking for dividend strategies to generate more income from their investments. It is already clear companies are beginning to respond to this: Microsoft, for example, recently increased its dividend by 25%. But it’s not just the giants doing this: we’re beginning to see similar moves across the board.”

He added that in the second quarter of 2011, US dividend payments were up 32.5% over 2010, a sign of the balance sheet repair work done since 2008. “Large cash balances coupled with the deleveraging of balance sheets post the 2008 financial crisis afforded companies enough financial flexibility not only to raise dividends but also to improve the sustainability of those dividends. Also, many corporations are generating healthy free cash flow which provides further support for dividends.”

However, company valuations, as measured on a price/earnings basis, remain relatively depressed. “Valuations are low and attractive – we are not paying a lot to own these companies. Longer-term average S&P 500 multiples have been 17x, well above the 12x we are witnessing today, so there is an opportunity to see longterm capital appreciation as well as rising dividends.”


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Published: November 10, 2011
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