Yields Rising on Shares of Arizona Companies

By Russ Wiles, The Arizona Republic
Sunday, April 17, 2005

Flowers aren't the only things in bloom these days in Arizona. Dividend-paying stocks also are opening their leaves.

Eighteen Arizona public companies, nearly one-third the total, now send dividends to shareholders, and 14 of those firms boosted their payments within the past 12 months.

The trend means Arizona investors can look to local companies for better dividend income -- a relatively stable form of stock-market return.

Utilities and real estate investment trusts, or REITs, dominate the list. Both types of companies have dependable cash flow and, in the case of REITs, must pass most of their profits to shareholders to take advantage of favorable tax provisions.

Arizona Land Income, a REIT that holds properties and mortgage loans in the Phoenix metro area, yields more than 8 percent, the state's top dividend performance.

But two other Valley REITs, Spirit Finance Corp. and Feldman Mall Properties, will give Arizona Land Income a stiff challenge for that honor. Both are on pace to offer annualized dividend yields in the 7 percent range but were excluded from our list because they're so new, having debuted as public companies in December.

Among utilities, Pinnacle West Capital Corp., parent of Arizona Public Service, pays a dividend exceeding 4 percent. That's about twice the payment of Unisource Energy, parent of Tucson Electric Power.

Several factors have encouraged a revival of dividends nationally, none more important than a change in income-tax law. Before Congress altered the rules in 2003, investors paid taxes on dividends as ordinary income. Now, dividends issued by most U.S. firms qualify for lower rates, a maximum 15 percent.

"Dividend taxes are now the lowest they've been in nearly 90 years," said Louis Navellier, a money manager in Reno.

Plus, investor psychology has shifted. Compared with the go-go 1990s, when people clamored for growth stocks as capital gains rained from the sky, appreciation is harder to come by. That's why more people are looking for a more certain return -- a dividend.

One other key ingredient is that plenty of corporations are cash-rich these days. Years of belt-tightening coupled with a rebound in the economy have given more firms the money to make dividend payments.

Despite recent improvement, dividend payments remain fairly slim by historical standards. Companies in the Standard & Poor's 500 index are paying a modest 2 percent on average, below the 3 to 6 percent range that typified most of the past century or so.

But plenty of firms are boosting payments. Standard & Poor's logged 594 first-quarter dividend increases from the 7,000 U.S. companies it tracks, up from 458 over the same stretch last year.

"Dividends are back in favor," said Joseph Lisanti, editor of an investment newsletter from Standard & Poor's.

"We think the reduction in the tax rate on ordinary corporate dividend payments and the current meandering stock market have combined to make dividends more important to investors."