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Dividend ‘Bubble,’ Dow Cloud Earnings Season Outlook

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Might we be in a dividend bubble? If the number of news accounts on the benefits of dividend-paying stocks and the mountains of company cash are any indication, one would most certainly say yes.

Jason Zweig hints at such a state in his latest column in The Wall Street Journal, noting, “Sooner or later, the markets always punish investors who do the right thing for the wrong reason. Some investors in dividend-oriented stock funds might end up learning that lesson the hard way.”

Coupled with the fifth straight day of heavy losses on the Dow and ominous warnings for earnings season, cause for concern might not sound so crazy.

“The number of firms in the Standard & Poor’s 500-stock index that provided earnings guidance to investors in March was 27, the lowest ever for the month of March and just the second-lowest of any month since 2000,” Jonnelle Marte notes on Real Time Advice blog. “While the reasons for staying mum can vary, analysts say silence often means companies are uncertain about their earnings going forward.”

“It seems like we’re hitting resistance,” Jack Ablin, chief investment officer of Harris Private Bank in Chicago, told Reuters. “I think the market will grind higher, but it will be at a much slower pace. Earnings and jobs aren’t helping.”

Analysts have trimmed estimates, management teams have grown more cautious, and overall growth rates have fallen sharply, the news service adds, while noting “analysts have been cutting estimates steadily in the last few months, but the ratio of cuts to increases leveled off in March, That indicates “analysts are still cutting estimates, but at a decreasing rate.”

Adding to the confusion, however, is an outlook from SNL Financial that finds big banks, like JPMorgan Chase, which releases earnings this Friday, expect “reasonably good” first-quarter results.

“The nation’s largest banking companies—JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co.—are expected to post per-share profits for the first quarter,” SNL writes, “despite only modest loan demand and pressure on net interest margins.”

“It should be a reasonably good quarter,” the Guggenheim Securities analyst Jeff Davis told SNL. Big U.S. bank earnings season kicks off April 13, when JPMorgan and Wells Fargo report first-quarter results, the firm says.