By Wallace Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch) -- Investors this week will divide
their time watching for dividend hikes that are popular in February
while taking the pulse of the U.S. consumer from companies such as
Coca-Cola Co., Wal-Mart Stores Inc. and Priceline.com, Inc.
Stocks finished higher across the board Friday, notching their
best week of the year after consumer sentiment topped expectations
by coming in unchanged for February, and industrial production in
January declined on account of bad weather. The Dow Jones
Industrial Average (DJI) and the S&P 500 Index (SPX) both
gained 2.3%, while the Nasdaq Composite Index (RIXF) advanced
2.9%.
With about four-fifths of the S&P 500 having reported
earnings this season, attention in the President's Day-shortened
week will shift to how companies are translating increased earnings
into higher dividends, which are on track to beat 2013's record
cash payout, according to Howard Silverblatt, senior index analyst
at S&P Dow Jones Indices.
"There were 78 dividend increases in the S&P 500 in February
of last year," said Silverblatt. "We have 28 so far this February,
so I bet we beat that as it's only going to get busier and
busier."
Late Thursday saw a jump in dividend hikes and buyback
authorization increases, while earlier in the day, PepsiCo. (PEP)
also hiked its dividend and said it expects to increase buybacks.
Even with weak demand seen in emerging markets, Cisco Systems Inc.
(CSCO)hiked its dividend last week.
In fact, Silverblatt said he sees a record dividend payout in
2014 of $339 billion from S&P 500 companies, topping 2013's
$312 billion, a far cry from when cash paid out totalled $196
billion in 2009.
But while the total amount paid out is on the increase, the
percentage of earnings going into dividends is actually on the
decline, Silverblatt notes. Dividend payments are about 36% of
earnings right now, down from a 78-year average of 52%, and that's
expected to fall to 34% by the end of 2014, according to
Silverblatt.
Stock buybacks for the fourth quarter, while running flat from
the third quarter's $128.2 billion, are still on track to be
significantly up on the year-ago quarter's $99.2 billion, he noted.
Then again, given the S&P 500's 30% rise in 2013, that appears
to be just keeping up with valuations.
Meanwhile, U.S. corporations are still sitting on a record
amount of cash, an estimated $1.25 trillion on the books at the end
of the third quarter. Even with cash payouts and buybacks on the
rise, Silverblatt expects that to increase by 3.7% for the fourth
quarter.
Consumer-driven earnings ahead
About 40 S&P 500 companies report quarterly results this
week, with a quarter representing consumer discretionary and
consumer staples stocks.
So far this year, excluding energy and telecom, the consumer
discretionary and consumer staples sectors have performed the worst
with declines of 2.5% and 3%, respectively. The S&P 500, in
contrast, is down 0.5% year-to-date.
As to whether the consumer contribution to the economic recovery
is slipping, much of the recent data shows conflicts, and investors
will have to keep an eye on what pans out in the next month or
two.
Consumer discretionary and consumer staples companies are some
of the hardest pressed to top Wall Street expectations for
earnings.
Only 55% of consumer staples companies reporting and 62% of
consumer discretionary companies have topped earnings estimates,
compared with the 66% average for the S&P 500, according to
Thomson Reuters data.
It gets worse on the revenue side of things. With an average 64%
of companies on the S&P 500 topping Wall Street revenue
expectations, 51% of consumer discretionary companies have topped
estimates and only 33% of consumer staples companies have beat on
top-line forecasts.
Two Dow industrial components report this week with Coca-Cola
(KO) on Tuesday, and Wal-Mart (WMT) -- which recently warned on
profits, blaming weather and food-stamp reductions -- reporting on
Thursday.
Other notable earnings reports include Medtronic Inc. (MDT) and
Herbalife Ltd. (HLF) on Tuesday; Marriott International Inc. (MAR),
Safeway Inc. (SWY), and Tesla Motors Inc. (TSLA) on Wednesday; and
Hewlett-Packard Co. (HPQ), Groupon Inc. (GRPN), Nordstrom Inc.
(JWN), Priceline.com Inc. (PCLN) , and Express Scripts Holding Co.
(ESRX) on Thursday.
Economic data in the holiday-shortened week that may lend some
insight into consumer health includes the home builder's index on
Tuesday, housing starts on Wednesday, the consumer price index on
Thursday, and existing home sales on Friday.
Also, the Federal Reserve is scheduled to release minutes of its
recent Federal Open Market Committee meeting, where the central
bank reduced asset purchases by another $10 billion a month, on
Wednesday.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires