The income potential of equities is positive right now – especially in this low interest rate and low inflation environment. The S&P 500 currently boasts a yield of around 2.0% and (assuming no recession) dividends should continue to grow.
What does this chart highlight? The popularity of dividend payments
1. The number of dividend-paying companies over the past year is higher than at any point since the early 1980s:
- Nearly 85% of S&P 500 companies pay a cash dividend
- 67% of the S&P 500 companies have raised or initiated a cash dividend over the past year
2. The financials and technology sectors are neck and neck for the title of largest dividend-payer as of mid-March, paying 14.6% and 14.9% respectively of all S&P 500 index dividends. For technology companies, this is a far cry from the “tech bubble” of 1990s when paying a dividend was viewed as a sign of business maturity rather than of high growth potential. Therefore, it was viewed as a sign of weakness, particularly in Silicon Valley.
3. S&P 500 companies are paying out roughly 35% of earnings in cash dividends today, a level that provides capital return to shareholders and capital retention to support future growth.
4. S&P 500 cash dividends paid have risen at a 10.3% annual rate over the past 10 years. Dividends fell in just one calendar year (2009) of the past 10. This was largely due to cuts in the financial sector. According to Standard & Poor’s, dividend growth resumed in 2010 and has accelerated ever since.
(c) Loomis Sayles