Today, with the stock market closed for the Good Friday holiday, it’s a good time to reflect on the events of the past week, and on earnings season. First quarter earnings reported by a number of companies have so far been rather positive. Included in the earnings bonanza was dividend aristocrat Johnson & Johnson, a company that beat estimates and increased it forecast for the coming year.
Other companies also reported solid earnings, including Intel and Wynn Resorts. Banks also showed good profits this week, including Citi, which is recovering from its near collapse following the 2008 financial crisis. Indeed, as Citi shareholders questioned the plans of Citi executives, a promise was made: A higher dividend in 2012. The company cited profitable quarters all through 2010, and a good profits in the first quarter of 2011 as evidence that its plans were working.
Last week saw a number of announcements related to rising dividends, and the prospect of improved profits and cautious optimism that recent housing market and employment news will mean a pick-up in the economic recovery has many hoping that more good news is on the way.
However, before anyone gets too excited about the return of increasing dividends, it is important to note that there are still some hurdles to overcome. U.S. companies and foreign companies may be turning profits right now, but the situation is far from stable in the financial markets. The euro zone remains on the verge of a meltdown, high oil prices are likely to hinder economic recovery, and we can’t ignore the budget battle brewing as politicians try to remain popular while solving the nation’s budget woes ahead of the 2012 election year.
The positive earnings news of this past week may have caused investors to forget the downgrade to the U.S. sovereign debt outlook at the beginning of the week, but it is something that still needs to be considered going forward.