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  Introduction

A Recent History:

Over the last 15 years, stock markets in the United States and around the world have been extremely volatile. U.S. stocks, as indicated by the S&P 500 Index, roared into the new millennium achieving a new all-time high value in March 2000. Over the next two years, the market swooned, falling to levels not seen since mid 1997. From September 2002 to October 2007, the S&P500 rallied again, gaining 90% in roughly five years. However, from October 2007 to March 2009, U.S. stocks lost more than half their value, and in many markets around the world, the results were even worse. Those declining stock values mirrored the state of the world economy, as country after country slipped into a deep recession. U.S. firms responded by cutting dividends. Standard and Poor’s reported that a record number of firms cut their dividend payment in the first quarter of 2009, and a record low number announced plans to increase their dividends.

Fortunately, from its March 2009 low, the U.S. stock market nearly doubled over the next two years, hitting a post-recession peak in April 2011. The run-up in stock prices coincided with an increase in dividend payouts. Of the 500 firms included in the S&P 500 stock index, 154 increased their dividend payment in 2010 or 2011, compared to just three firms who cut payments over the same period. Even so, the good news for stocks didn’t last very long. In the spring of 2011, concern about a looming economic crisis in Europe sent U.S. stocks lower again. The S&P 500 Index fell by more than 17% from April to September in 2011. The roller coaster ride wasn’t over because from September 2011 to May 2015 the U.S. stock market, with a few more rough spots along the way, increased in value 88% to achieve yet another all-time high.

Throughout this volatile period, some companies managed to increase their dividends each year. Standard and Poor’s tracks the performance of a portfolio of firms that it calls “dividend aristocrats” because these firms have managed to increase their dividends for at least 25 consecutive years. Including household names such as Johnson & Johnson, Exxon Mobil, and AFLAC, the dividend aristocrat index displays ups and downs that mirror those of the overall market, but at least investors in these firms have enjoyed consistently rising dividends.

(Sources: Stephen Bernard, “S&P: Record Number of Firms Cut Dividends in 1st Quarter,” Pittsburgh Post Gazette, April 7, 2009; “S&P 500 Dividend Payers Rose to Dozen Year High,” May 1, 2012, http://seekingalpha.com/article/545451-s-p-500-dividend-payers-rise-to-dozen-year-high; http://www.standardandpoors.com/indices/sp-500-dividend-aristocrats/en/us/?indexId=spusa-500dusdff--p-us----&ffFix=yes); Oliver Renick, “S&P 500 Sets New Record High Close,” Bloomberg Business, May 14, 2015, http://www.bloomberg.com/news/articles/2015-05-14/u-s-stock-index-futures-gain-as-s-p-500-heads-for-weekly-loss)