S&P Reports Record Dividend Payments, Falling Yields

U.S. companies have been more generous than ever in returning excess cash to shareholders via dividends. However, thanks to the strong performance of the stock market this year, dividend yields are actually lower than they were in 2016.

According to the latest report from S&P Dow Jones Indices, domestic U.S. companies increased their dividends by a total of $15.5 billion in the third quarter. For the 12 month period ending September 2017, net dividend increases climbed 99.9 percent to $41.5 billion.

More Hikes, Fewer Cuts

In the third quarter alone, 238 companies raised their dividends, and a total of 2,625 companies have done so over the past year.

Not only are more companies raising dividends, fewer companies are cutting them. Only 93 companies lowered their dividends in Q3. In the past year, only 465 companies slashed dividend payouts, a 30.3 percent decrease from the previous 12-month period.

Looking specifically at S&P 500 stocks, 82.6 percent of the indexs component stocks currently pay a dividend. The average dividend increase within the S&P 500 in Q3 was 14.4 percent, and S&P 500 stocks paid out a record $105.4 billion on the quarter.

For full-year 2017 dividends are on track to post a 7% gain, compared to a 5.6% gain for 2016, and income tax reductions could increase payments analyst Howard Silverblatt said.

Rising Payouts, Falling Yields

Surprisingly, large-cap stock yields dipped from 1.99 percent in Q2 to 1.97 percent in Q3.

Declining yield is a phenomenon that has been playing out for decades in the S&P 500. Overall market gains have outpaced dividend hikes, leading to a net overall decline in yields. Despite record dividend payouts, the S&P 500s current 1.88 percent dividend yield is well below the 2.0 to 3.0 percent dividend yield the index averaged in the early 1990s and the 4.3 percent historical average yield dating back to the 1800s.

How To Play It

For investors who are happy to capture S&P 500 gains and see dividends as simply a bonus, the SPDR S&P 500 ETF Trust (NYSE:SPY) is one of the most popular index funds among investors. However, for investors looking for even higher dividend yields, the Vanguard High Dividend Yield ETF (NYSE:VYM) is comprised of high dividend stocks yielding an average of nearly 3.0 percent.