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DIVIDEND PAYMENTS ARE GROWING AT THEIR FASTEST RATE SINCE 1990

The news on corporate dividends has been good in recent weeks - but not good enough to impress everybody on Wall Street.

The positive part of the story is that dividend payments are growing this year at their fastest rate since 1990, benefiting from a strong recovery in corporate profits.On the negative side, however, the increases have come too gradually so far to produce much improvement in what many analysts consider an ominously low level of stock yields.

Meanwhile, rising interest rates, in response to credit-tightening by the Federal Reserve Board, have reduced the comparative luster of those dividend increases.

The Fed's moves have prompted widespread worries in the markets that the economy will slow down, reining in dividend growth before it has a chance to gather full momentum.

The aggregate dividend yield on the 500 stocks in Standard & Poor's composite index is hovering around 2.75 percent, or pretty close to the lowest levels seen in modern times.

Some analysts state this mathematical relationship the other way around, in the form of a price-to-dividend ratio above 35 to 1.

"This important long-term indicator continues to flash a bearish signal as it remains deep in overvalued territory," says Stan Weinstein in his Professional Tape Reader advisory service, based in Hollywood, Fla.

"Such high figures have only been seen a handful of times this century, and this is a definite reason for long-term concern."

To many capital gains-conscious investors, dividends may seem to be of secondary importance in the stock market compared to the ups and downs of stock prices. But even in years of big price swings, dividends are an important component of the total return available from stocks.

In addition, dividends can have a powerful psychological impact on the market, as was demonstrated in late August when Philip Morris, a prominent blue-chip company whose shares have been pummelled in the past couple of years, announced a 19.6 percent dividend increase.

The stock jumped 21/2 points, to 61, on the day of the dividend declaration, which was accompanied by word of plans for a $6 billion stock buyback over the next three years.

The shares have lately traded at their highest levels since "Marlboro Friday" in the spring of 1993, when the company announced cigarette price cuts in a dramatic bid to regain market share.

"A near-20 percent increase in the dividend is no smokescreen," said William LeFevre, an analyst at Ehrenkrantz King Nussbaum Inc.

But not too many other companies have been increasing their dividends on anything like that scale.

According to Standard & Poor's advisory publication The Outlook, year-to-year growth in dividends for the S&P 500 through the first eight months of 1994 was 2.9 percent. For the full year, S&P expects the growth rate to come in around 4 percent, with a "more pronounced improvement" in store for 1995.

Still, say S&P analysts, after a late-summer rise in stock prices "the market is close to fully extended. Earnings and dividends have to grow further to keep price-earnings ratios and dividend yields from reaching extremes."

Furthermore, stock dividends must compete with the interest rates available on low-risk money market investments.

What looked like a decent stock yield a year ago, when money-market funds were paying about 2.5 percent, tends to appear a little less alluring now that money funds are returning 4 percent.

The comparisons would get even more difficult in the months ahead if, as many analysts expect, the Fed takes further steps to tighten credit conditions, exerting additional upward pressure on short-term rates.

Says David Hale, chief economist at Kemper Securities Inc., "U.S. interest rates have not peaked."