ClearBridge Investments Co-CIO Lauds "Golden Age of Dividends"

Mr. Cohen first wrote about the phenomenon in March 2013 and believes the situation continues today. A professional investor for over 45 years, he advises investors who want to reap increased income and other benefits to take full advantage of this trend.

“I love it,” said Mr. Cohen, who leads investment teams managing equity income strategies. “The companies have more cash on their balance sheets than they’ve had in decades. They’re not spending on capital spending as much as they used to. We prefer dividends to buybacks, and companies are listening to shareholders… I think corporate directors started to get that maybe it will be a good idea to shift the mix from more buybacks and less dividends to more dividends and fewer buybacks.” Mr. Cohen noted that the trend had “…really gathered steam a couple of years ago as individuals were crying, begging for income.”

Mr. Cohen explained that in most cases prior to the 1990s, dividends averaged 50% of after–tax corporate profits. However, that dropped to 25% by 2000 “…because of a variety of factors, mainly having to do with companies stuffing their pockets with stock options and used the free cash flow, instead of dividends, to buy shares to support the stock prices.” In his view, that level was “way too low.”

Changes in dividend payouts have been recent and significant.

“I think last year they jumped materially,” Mr. Cohen said. “You had 3M last year; 3M has been a dividend raiser every year for, call it 50 years. And they raise, but it used to be a 6–7% dividend increase. Last December they announced a 35%; increase, huge. This December they announced a 20% dividend increase — where is somebody going to get a raise like that?”

“So yes, this is the golden age of dividends. I think it will continue. Dividend payout ratios are still only 33–34%. I’m not saying they’ll get back to 50%, but I don’t think they’re going back to 25% either. The growth story for dividends is definitely intact.”

Mr. Cohen believes dividend–focused strategies can also help investors weather market swings.

On occasions when the stock market sees a major single–day move down, “I say, ‘Well, gee, not one of my companies cut their dividend today.’”

As for his broader stock market outlook for 2015, Mr. Cohen said, “I think you have to be broadly diversified. The markets are pretty well correlated across groups. I don’t see any compelling industries and nor do I see any really overpriced industries. That’s where I come down on it, kind of a broad–based approach. I love the dividend sector, so I look for a broad–based portfolio of companies with the ability to raise their dividends. That’s not necessarily for everybody. The biotech stocks have had this massive run and they change peoples’ lives. That’s a good thing. You look for companies that change peoples’ lives.”

When asked what history will write of the 2014 equity markets, Mr. Cohen answered, “Good returns. Not exactly unfolding the way you would think it would, which is a steady grind upward without a major pullback. I think from a broad perspective, a pretty good year, unknown going forward for energy. But I don’t see how you can call it anything but a good year.”

To view a highlight of Mr. Cohen on the Asset TV interview, please access this link: https://youtu.be/VkWop1wmRfw

Mr. Cohen’s full portion of the interview can be viewed at: https://www.clearbridge.com/commentary/video/hersh_cohen_in_asset_masterclass_on_market_outlook_2015.aspx

Investment advisors can use this program for Continuing Education credit purposes. To that end, the full video can be viewed at: https://us.asset.tv/video/masterclass-2015-market-outlook

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About Hersh Cohen

As co–chief investment officer and a portfolio manager for the ClearBridge Investments Income Solutions team, Hersh Cohen manages the dividend strategy and equity income products, in addition to managing private portfolios and retirement funds. He is a member of the ClearBridge Investments Management and Risk Committees. Mr. Cohen began his career with a predecessor organization in 1969 as a portfolio manager and has more than 45 years of industry experience. He was appointed CIO of ClearBridge's predecessor firm in 2004. Mr. Cohen received his B.A. from Western Reserve University in 1962 (now Case Western Reserve University), and earned a Ph.D. in Psychology from Tufts University in 1966.

About ClearBridge Investments

ClearBridge Investments is a well-established global investment manager with over $114 billion in assets under management as of December 31, 2014. With a legacy dating back over 50 years, our long-tenured portfolio managers and fundamental research team focus on building equity portfolios for clients who seek income solutions, high active share or low volatility. Owned by Legg Mason, ClearBridge operates with investment independence from headquarters in New York and offices in Baltimore, San Francisco and Wilmington.

About Legg Mason

Legg Mason is a global asset management firm, with $709 billion in AUM as of December 31, 2014. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

CONTACT:
Mary Athridge
Legg Mason
212-805-6035
[email protected]