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Optimistic companies promising bigger payouts

by Candice Choi
| June 10, 2010 9:00 PM

NEW YORK - Corporate America is betting cash - in the form of higher dividend payouts - that the economy is rebounding.

Three major U.S. companies - Caterpillar Inc., Target Corp. and Viacom Inc. - hiked their dividends Wednesday, signaling a growing optimism about the path of the global economy. Medical device maker C.R. Bard Inc. also raised its dividend.

So far this year, that means 135 companies have raised, initiated or reinstated dividends, while only two companies have cut them, according to Standard & Poor's. The net effect is a $10.4 billion increase in dividend payouts for the year.

By contrast, dividend payouts last year dropped by a record $39.8 billion, or 21 percent, overall. The net decrease was the result of 79 dividend increases and 63 decreases.

Dividends are cash that companies pay to shareholders on a quarterly basis. Promising a higher regular payout means a company is confident about its future earning potential.

In another sign of a brightening outlook, more companies are also announcing stock buyback programs. So far this year, 310 companies have done so, compared with a total of 253 over the same time period last year. Nearly 700 companies announced buyback programs over the same period in 2008, before the credit market froze later that year according to Dealogic.

Stock buyback programs indicate companies have enough cash to take their shares off the market, which increases the value of the remaining shares. Buybacks can also reduce the possibility of takeover threats.

Caterpillar, the world's largest maker of construction and mining equipment, said it was raising its quarterly dividend by 5 percent to 44 cents. The hike comes as demand continues to grow for the company's heavy equipment amid a global economic recovery.

The company's machinery is used so widely throughout the world that its results are considered a bellwether for the health of the broader economy.

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