Wall Street turns back to dividends.- 3rd April 2003
Ben Wilmot - Australian Financial Review
Dividend yield is expected to remain a major theme for Wall Street investors, according to a visiting senior economist of a major US fund manager.
Robert Goodman, senior economic adviser to Putnam Investments in Boston, said: "Corporations are seeing dividend programs as a way to literally bribe back shareholders."
Even if the Bush administration's dividend proposal was softened so that dividends were taxed at 20 per cent rather than not at all, Dr Goodman predicted their return would become a major theme on Wall Street.
He said this would in turn drive demand for stock, as more mutual funds were able to invest, particularly as redemptions were already stabilising.
Investors have pulled $US2.8 billion ($4.6 billion) from Putnam this year, after taking out $US15.7 billion in 2002, the most of any mutual fund company, according to the Financial Research Corp.
Dr Goodman said that half of the $US2.7 trillion sitting in money market funds was earmarked to return to the equity market.
However, a lot was dependent on whether the war in Iraq finished in a satisfactory manner, improving President George Bush's hand with Congress and leaving the US and its currency well regarded.
Dr Goodman warned that if the US "wins badly" - with more casualties and the Iraqi oil fields destroyed - the administration would be vilified abroad and domestic calls for President Bush's impeachment would emerge, leading to concerns about gridlock and recession.
Dr Goodman said market psychology was now worse than in 1973-74 but argued that at least then it was warranted by the poor conditions.
"Today, that negative psychology is not warranted by the economics," said Dr Goodman.
"When psychology turns, and economics become the driving force, the trend will as well, and that can be a very powerful thing."