22 Straight Quarters of Higher Dividends

Dividends continued to grow last quarter, at least on a per-share basis. In Q3, the S&P 500 paid out $10.79 per share in dividends. That’s the index-adjusted figure (every $1 in the S&P 500 is worth about $8.81 billion).

Dividends increased last quarter for the 22nd quarter in a row. The rate of increase, however, slowed to 7.67%. That’s the second-slowest rate in the last 19 quarters. The only reason Q4 of 2013 was lower was due to unusually high comps caused by the new tax law. In Q4 2012, companies paid out lots of divs to take advantage of the lower rate.

As I’ve noted before, this bull market has been one of dividends as much as it’s been one of stocks. What’s interesting is how closely the S&P 500 has tacked a 2% dividend yield over the last few years.

Check out the chart below. This shows the S&P 500 in blue and it follows the left scale. The trailing four-quarter dividends are in black and they follow the right scale. I scaled the two lines at a ratio of 50-to-1. In other words, whenever the lines cross, the index’s dividend yield is exactly 2%.

A few items stand out. For one, notice how much more stable the black line is than the hectic blue line. From 2004 to 2007, the S&P 500 maintained a dividend around 1.8%. Then everything fell apart during the financial crisis. But stock prices fell far more than dividends. Notice how the blue line tends to move, up or down, before the black lines. By Q2 2010, dividends started to rise again.

Once the dividend trend got going, stock prices largely kept pace with dividends. That’s one of the reasons why I’ve been reluctant to say that this market is a bubble despite many voices insisting that it is.

The S&P 500 will probably pay out $43 per share in dividends this year. That’s a 90% increase from what was paid out in 2010.

Thanks to the market’s recent dip and higher dividends, the S&P 500 paid yielded 2.21% on a trailing four-quarter basis. That’s the highest in four years. To get a 2% dividend yield, the index would have to rally to 2,125. That’s about a 10% leap from where we are now.

Posted by Eddy Elfenbein on October 2nd, 2015 at 10:41 am

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