What happened to dividends? (Investments & Finance).

If we hadn't been told so many times to look for it, we might be hard-pressed to detect any sign of at all. Maybe the revival has only been delayed by war news and legislative uncertainties.

THE much-touted resurgence of dividends as a stock-market force is off to an unimpressive start.

Or maybe it just isn't in the cards.

At least a year has passed since analysts began predicting a comeback for dividends, which fell out of vogue in the capital-gains chase of the 19905. If the bursting of the bull-market bubble undermined confidence in quarterly earnings and other numbers subject to, creative accounting, well, dividends could be just the right restorative. They're real money.

"Today there is renewed respect for companies able to deliver tangible (that is, cash) returns, given relentless market losses and the doubt cast on reported earnings by accounting scandals," says a commentary published by Putnam Investments.

"So far this year," Putnam goes onto acknowledge, "the performance of dividend-paying stocks as a group has been undistinguished." Same goes for stock funds -- income and growth-and-income funds -- that emphasize dividends.

Equity-income funds tracked by Bloomberg averaged a 2.5 percent decline from the start of 2003 through April 11, and growth and income funds lost 1.6 percent, while plain old growth funds declined 0.9 percent.

By any measure, if the recent showing of dividend-conscious stock funds is supposed to represent some kind of light leading out of the darkness, the market outlook isn't bright.

One source of hesitancy may well be on-again, off-again prospects for enactment of President Bush's proposal to improve the tax treatment of dividends. That wrangle may be settled soon.

A separate issue may be bothering both taxable and tax-exempt investors such as pension funds and 401(k) participants. Stock dividend yields, which fell' to historic lows in the last few years, remain skimpy in the 1.9 percent tc 2.5 percent range, depending on which broad market average you look at That problem is mitigated, the bulls say, because interest rates are super low. The 10-year Treasury bond yields only about 4 percent, and unlike stocks it offers no hope of future payout increases.

That's true for U.S. government securities. Not so for high higher-yielding bonds such as "junk" corporates in this country and emerging-market debt from around the world. Those asset classes have attracted a lot of attention lately from yield-hungry investors.

Possibly this sort of enthusiasm 'will transfer itself next to dividend-paying stocks Says Putnam: "We think the fact that investors are not yet bidding up stocks that pay dividends versus those that don't represents an opportunity. Whatever the outcome of the Bush administration's proposals, dividend yield is just getting started as a major driver of relative stack performance in U.S. markets."

But misgivings linger. What happens to the attractiveness of stock dividends if interest rates continue their recent rise, pushing yields higher on high-quality bonds and money-market securities?

Stocks will need dividend increases, or at least the expectation of 'dividend increases, to keep pace. The chances of that depend largely on an improvement in corporate earnings, which are the well-spring from which dividends flow.

Any way you script it, the dividend revival 'is subject to the Ringo Starr rule. You know it won't come easy.