(Bloomberg News) Record earnings fueled by the highest profit margins since 1993 are giving executives more leeway than ever to boost dividends as the bull market enters its third year.

Margins will climb to 8.9% in 2011, the highest level in at least 18 years, according to data compiled by Bloomberg on non-financial companies in the Standard & Poor's 500 Index through March 11. Greater profitability combined with dividend cuts during the credit crisis have pushed earnings to 6.53% of the gauge's price, or 3.5 times more than its payout rate, close to the record 3.6 multiple in January.

A total of 95 companies led by Aetna Inc. and Carnival Corp. have raised dividends as the fastest economic expansion in six years and five straight quarters of earnings growth increased confidence among chief executive officers. Of the 380 that pay dividends, 378 are forecast to maintain or increase them, according to data compiled by Bloomberg using options prices, profits, management statements and peer comparisons.

"The economy seems to be doing well and earnings are on the recovery path, which companies wanted to be sure about before they raised their dividends," said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. "I feel relatively confident that most of the dividends out there are secure, and we'll see some fairly broad based increases."

Weekly Decline

The S&P 500 fell 1.3% to 1,304.28 last week, after the U.S. trade deficit and claims for unemployment benefits exceeded estimates and export growth in China slowed to the lowest rate since 2009, according to data compiled by Bloomberg. The retreat extended the S&P 500's loss since reaching a 32- month high on Feb. 18 to 2.9%. The gauge has rallied 93% from its March 9, 2009 low.

The benchmark index slumped 0.5% to 1,297.39 at 9:51 a.m. New York time today as investors struggled to assess what impact the worst Japanese earthquake on record will have on the world's third-largest economy. The 8.9-magnitude temblor on March 11 may have killed 10,000 in the Miyagi prefecture north of Tokyo, said Go Sugawara, a spokesman for the prefectural police department. The official toll reached 1,823 dead, with 2,369 more missing, the National Police Agency said.

Record Profits

Analysts say S&P 500 profits will rise 16% this year and surpass $100 a share for the first time in 2012, helping persuade executives at companies from CBS Corp. to Pioneer Natural Resources Co. and Wal-Mart Stores Inc. to boost payouts. U.S. companies increased stock buybacks in 2010, making it the fifth-biggest year for share repurchases since at least 1985, according to Birinyi Associates Inc. With $76 billion announced, February was the best month for buybacks since December 2007.

CEOs are spending more on shareholders after stockpiling cash since 2008 when the financial crisis eliminated profits. They bought back $325.8 billion of stock in 2010, more than double 2009's repurchases, Birinyi data show. About $191.1 billion of takeovers in the U.S. have been announced so far this year, on track with last year's $198.2 billion as of March 11, according to Bloomberg data.

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