Political  Calculations

On 13 March 2012, the S&P jumped upward by nearly 2%, rising by 24.86 points to 1395.95, mainly on the news that the Federal Reserve was giving a passing grade to 15 of the 19 largest banks in the United States.

What makes this more than just a noise event was the subsequent action taken by Wells Fargo (NYSE: WFC to almost double the amount of its quarterly dividend for the first quarter of 2012, increasing it from 10 cents per share to 22 cents per share. The Federal Reserve's announcement at 3:00 PM EDT had essentially opened the door to allow Wells Fargo to act upon what were previously whispered rumors.

Because Wells Fargo is currently the 12th largest component of the S&P 500, the company's market capitalization weighted dividend increase has a significant effect upon the expected dividends for the entire index.

 Morningstar: WFC 13 March 2012

In our first chart, we can see the impact of WFC's dividend increase through all the dividend futures we have available through the first quarter of 2013. These are the expected trailing year dividends per share for the S&P 500 through 15 March 2013.

Expected Future Trailing Year Dividends per Share for the S&P 500, 14 March 2012

Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

Be the first to read Political Calculation's column. Sign up today and receive Townhall.com delivered each morning to your inbox.


Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!