This is an era of dividends. Your clients want them, and companies are providing them. In fact, companies are declaring more dividend payments, more companies are paying dividends and more dividend rates are being increased.

Although the average dividend increase this year has been a bit smaller than the average increase seen each year from 2005 through to 2008, Toronto-based TMX Group Inc. reports that, as of Sept. 30, 140 companies trading on the Toronto Stock Exchange have raised their common-share cash dividend rate this year. That is the most since the full year in 2007. The average increase this year is 14.2%, which is a bit less than the 2010 average increase.

Furthermore, a larger proportion of companies are paying dividends today. TMX’s latest data show 57% of listed companies pay a dividend. That almost matches the highest proportion in the years of 2005-07. Compare that with the year 2000, when 43% of companies paid a dividend.

In a given month this year, the number of dividend declarations has risen to as high as 26% of companies listed from around 10% 11 years ago. At latest count, the TSX had 1,571 companies listed, covering 2,167 stock issues.

The broad pattern is significant. (See accompanying chart.) The number of dividend declarations by TSX companies recently had averaged 372 over 12 months. That is more than double the 12-month average number of dividend declarations in 2000.

The explanation for this: capital gains was the name of the game in the great bull market that had crested in 2000. In the new economic climate, dividends have become more important to income-seeking investors, and companies have become more than willing to pay out cash than to spend it on expansion or share buybacks.

The stock market rally following the 2001-02 crash had been spurred by rising numbers of dividend payments — not just increases, but in the number of dividends declared.

That trend peaked in 2006, anticipating the 2008-09 market drop. The current rising trend in the number of dividend declarations is a bullish sign.

Dividend increases get the headlines, though. That trend also is encouraging. As mentioned earlier, 140 companies have raised their rate of payment at an average increase of 14.2% year-to-date as of Sept. 30.

The number of increases is larger, but the average size of the increase is smaller:

  • In 2005, there were 130 dividend increases, averaging 16.2%.
  • In 2006, the number of increases moved up to 150, averaging 16.6% each.
  • In 2007, there were 140 increases, averaging 16.5%.
  • In 2008, things began to slow down. The number of dividend increases dropped to 124, with the average gain being 15.1%.
  • In 2009, they dropped again to 67 increases, averaging 10.6%.
  • In 2011, the trend started to reverse, with 111 increases at an average of 14.6%.

These dividend numbers exclude extra dividends and dividends from investment companies and income trusts. So-called “stock (share) dividends” are also excluded from this analysis. IE