Dividend Hikes Offer Optimism Amid Tariff Turmoil

Yahoo

18-05-2025

S&P 500 earnings per share estimates have come down sharply. According to FactSet, calendar year 2025 is now expected to show $266 in operating EPS for the Index.[1] Forecasts had called for nearly $280 as recently as last Q3 last year. Of course, macro headwinds have come about, to put it nicely. Many large US multinational corporations are tarrified, as Ed Yardeni puts it. Josh Brown of Ritholtz Wealth Management has dubbed it Tariff Spring. Still, global equities have proven to be resilient.
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Following a sharp rally off the April 7th low, US large caps now collectively trade just above the 20x price-to-earnings multiple mark, while international stocks actually closed April at an all-time high on a total return basis.[2]
Investors should go beyond profit expectations and near-term price action, though. Our team dug into the data and found some interesting results. It turns out that since the beginning of April, 29% of global firms that have updated their dividend policies have raised their dividend, while just 7% have announced a cut.
While still early for a full second-quarter tally, that 23% positive differential is five percentage points above the 17.9% hikers-to-cutters gap from Q2 last year. It's also better than the 17.2% figure compared to two years ago.
Dividend Changes by Percent: Solid Start to Q2 (Net +23%)
Source: Wall Street Horizon
The bears might assert that we are torturing the data with this one, but it's clear that corporate profitability was very strong ahead of President Trump's so-called Liberation Day. Much uncertainty lies ahead, even after the sanguine stock response in the past four weeks, but perhaps executives are signaling to investors that we'll get through this era of unease okay.
The pessimists and optimists will keep duking it out, and we'll watch how first-quarter earnings come in over the weeks ahead. Usually, the latter half of the reporting period is somewhat uneventful since big-cap tech (sans NVIDIA (NVDA)) has already issued numbers to the street. This time, though, retailers will be particularly pivotal to monitor.
Consumer companies are in the crosshairs of the tariff turmoil. Immediately before the release of the April Retail Sales report, Walmart (WMT) reports next Thursday morning (May 15). A slew of retailers then post Q1 results the following week, including the likes of Home Depot (HD), Lowe's (LOW), Macy's (M), Target (TGT), and Ross Stores (ROST).
We've already heard from two consumer-related blue-chips, one from the Staples sector and the other from the Health Care space.
Procter & Gamble (NYSE:PG) topped analysts' earnings estimates on the morning of April 24, but $19.8 billion of Q1 revenue missed Wall Street's forecast.[3] Shares fell by 3.7% in the session that followed, and PG actually touched an intraday 52-week low that day. A mild share bounceback has ensued, but it might not have been Procter's profits that impressed investors. Rather, the stalwart household name announced a dividend increase on April 8, 2025, marking its 69th consecutive year of dividend growth.[4] It's a dividend aristocrat, of course, meaning the company has increased its dividend for each of the past 25 years.
To be clear, PG hiking its payout is not the most aggressive of risk-on signals, but this corporate body language should remind investors that amid uncertain macro times, high-quality companies can execute well, rewarding shareholders.
A week after Procter's dividend increase announcement, Johnson & Johnson (NYSE:JNJ) reported a strong start to the year, beating on both the top and bottom lines. The $376 billion market cap Pharmaceuticals industry company also boosted its full-year revenue outlook, but investors were not impressed.[5] The stock fell by half a percent on April 15th, marking a second straight weak reaction to earnings. Perhaps the street was on edge after its management team estimated that tariffs would draw a $400 million hit to its top line this year.
Still, on the call, it expressed confidence in operational and financial prospects for the balance of 2025. Moreover, JNJ increased its dividend for the 63rd straight year, a 4.8% hike, bringing the forward yield to 3.3%, more than double that of the S&P 500.[6]
This got us thinking: How have dividend stocks collectively performed year to date? Through April, the high dividend factor has been solid, up about three percentage points when comparing the Vanguard High Dividend Yield ETF's (VYM) return to the S&P 500 Trust ETF (SPY). And since we centered on a pair of dividend aristocrats, the S&P 500 Dividend Aristocrats ETF (NOBL) has done even better, outperforming SPY by more than four percentage points so far in 2025.[7]
Could dividends keep working? Hard to say, but it's likely safe to assume that macro headlines about trade policy will keep rolling in over the next few months, keeping investors nervous.
With weak survey data and downright bearish investor sentiment readings, stocks have surprised investors as we progress through the second quarter.[8] The Q1 earnings season has been mixed, but there have been few shockers. Reliable dividend-increase stocks posted alpha through April, but volatility could be in store as retail earnings updates roll in fast and furious starting next week.
1 Earnings Insight, FactSet, John Butters, May 2, 2025, https://advantage.factset.com2 VGTSX, StockCharts, May 5, 2025, https://schrts.co3 Procter & Gamble Non-GAAP EPS of $1.54 beats by $0.01, revenue of $19.8B misses by $350M, Seeking Alpha, Deepa Sarvaiya, April 24, 2025, https://seekingalpha.com4 P&G Declares Dividend Increase, The Procter & Gamble Company, April 8, 2025, https://pginvestor.com5 J&J Boosts Outlook Despite Incoming Tariff Costs, The Wall Street Journal, Dean Seal, Connor Hart, April 15, 2025, https://www.wsj.com6 Johnson & Johnson Announces 63rd Consecutive Year of Dividend Increase; Raises Quarterly Dividend by 4.8%, Johnson & Johnson, APril 15, 2025, https://investor.jnj.com7 VYM, StockCharts, May 5, 2025, https://schrts.co8 The AAII Investor Sentiment Survey, AAII, May 1, 2025, https://www.aaii.com
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