Dividend Growth Was Steady in Q3

Now that Q3 is on the books, we can see that dividends continued to grow. Dividends for the S&P 500 rose by 5.24% last quarter. That was the 26th quarter in a row of dividend growth.

The chart below shows the S&P 500 in blue (left scale) and the trailing four-quarter dividends in red (right scale). I scaled the two lines at a ratio of 50-to-1, which means that whenever the lines cross, the dividend yield is exactly 2%.

Notice how much steadier the red line is compared with the blue. That’s the essence of stock investing — fundamentals are far more rational than prices.

Also notice how closely the market has followed a 2% yield. No, it’s not perfect but over time, it’s done a pretty good job of telling us where stocks ought to be. Considering how simple the dividend yield is as a metric, it’s not too bad.

Here’s a look at the growth rate of dividends. As you can see, dividend growth has decelerated (the rate of growth has slowed).

Posted by Eddy Elfenbein on October 5th, 2016 at 12:52 pm

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