For Fund Managers, Dividend Paradise

Investors can expect a flurry of new and improved dividend payouts in coming weeks, and utilities, for a change, might not be the main beneficiaries, fund managers said at the Morningstar Investment Conference last week in Chicago.

"There's already been a lot of activity," said Brian Rogers, a vice president at T. Rowe Price and manager of the (PRFDX)Equity Income fund. "And companies have suggested to us that there's more to come as the year unfolds. I think we'll see a fairly aggressive increase in the amount of dividends paid, and also a lot of new initiations."

The panelists pointed to a slew of examples to back their enthusiasm. Microsoft (MSFT) and Qualcomm (QCOM) recently initiated dividend programs, paying 0.3% and 0.6%, respectively. (A report Monday morning said Microsoft is weighing a $10 billion one-time payout.) Also, just last week Mandalay Resort (MBG) announced it would begin paying dividends at 2.9%, while Goldman Sachs(GS) doubled its dividend (which had been unchanged since initiation in 2000) to 1.2% and Bank of America (BAC), which has steadily increased its dividend payments over the past five years, also increased it by 25% to 4%.

It's hoped higher dividends will bolster the recovering stock market. Why not take on a little more risk, the theory goes, if you're being compensated for it via yield? "The new tax law will definitely help alleviate investors' hesitance to get back into the market," Rogers said, adding that such changes may not be sweeping, but will be noticeable. "There will be increased investor demand on the margins, and that will help the economy and the stock market."

The increased emphasis on dividends will also have another positive side effect that Congress didn't likely foresee. "Investors will find that the return on reinvested capital will be consistently better," says John Carey, who manages several Pioneer stock funds, including (PEQIX)Pioneer Equity Income. "Companies will have a budget; their spending will be better thought out."