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May 4, 2015

Dividends: Sharing the wealth
S&P 500 cash dividends per share and payout ratio

chart

Source: S&P Dow Jones, as of 3/31/2015. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The bottom line:

  • Companies in the S&P 500 increased their cash dividend payments to shareholders in the first quarter of 2015, continuing a trend dating back to mid-2010.
  • The 12-month cash dividend per share for the period ended 3/31/15 represents a a new high for the market, up over 40% from the pre-recession peak.
  • The dividend payout ratio—the percentage of a company's earnings paid to shareholders in the form of dividends—moved higher as well to a little above 36%.
  • Yet that's still below the 75-year average, which stands above 50%.
  • It's not surprising companies are increasing dividend payouts Cash on corporate balance sheets continues to climb, so the money is clearly available to sustain or even increase this return to shareholders.
  • And many investors, frustrated by low bond yields, are looking for greater income opportunities and that's an incentive for companies to increase dividends in the quarters ahead to attract those investors.
  • Companies have also spent much cash on share buybacks—in fact, over $560 billion was spent on that last year alone (over $2 trillion since 2009).
  • Some analysts predict that combined dividend payouts and share buybacks will exceed $1 trillion this year for the first time in history.
  • While shareholders can clearly benefit from rising dividends and share buybacks, with luck companies will also uncover new opportunities to grow sales—and deploy some of their cash hoards into capital expenditures and new employees, supporting future growth for the economy. .

The chart:

  • The chart shows the rolling 12-month cash dividend per share and the dividend payout ratio of the S&P 500 from March 2005 through March 2015.
  • The record high cash dividend of $40.81 in 1Q15 represented an 86.3% increase from the March 2010 low of $21.90, and a 41.4% increase from the previous peak in September 2008.
  • The spike in the payout ratio in 2008-2009 is the result of earnings falling much more quickly than dividends.

Definitions:

The S&P 500 Index is an unmanaged index of common stock performance.
The dividend payout ratio is the percentage of a company's earnings paid to shareholders in the form of dividends.


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