View from the Observation Deck

Companies often return capital to their shareholders through dividend distributions. The practice is so common that 403 of the 503 constituents in the S&P 500 Index (“the Index”) distributed a cash dividend to their equity owners as of 11/14/24. In addition to acting as a conduit for the return of capital, dividend distributions account for a significant portion of the Index’s total return. According to data from Bloomberg, dividends contributed to over 37% of the total return of the Index over the 96-year period between December 30, 1927, and December 29, 2023.

• Dividend payments from S&P500 Index constituents totaled $70.91 per share (record high) in 2023, up from $67.57 (previous record high) in 2022. 
  
  
• As of 11/18/24, dividend payments are estimated to total $77.24 and $81.68 per share in 2024 and 2025, up from $74.54 and $79.66 per share in 2024 and 2025, respectively, on 1/31/24.
• Of the 11 major sectors that comprise the Index, eight of them had yields above the 1.26% generated by the Index over the period captured in the table. Financials, Information Technology, and Health Care contributed the most to the Index's dividend payout at 15.63%, 15.45% and 14.10%, respectively.
  
  
• The payout ratio for the S&P 500 Index stood at 36.43% on 11/18/24. A dividend payout ratio between 30% and 60% is typically a good sign that a dividend distribution is sustainable, according to Nasdaq.
  
  
• Many investors view changes in dividend distributions as an indication of strength and or weakness in the underlying company. For that reason, companies will often avoid decreasing or suspending their dividend payout. There were a total of 12 dividend cuts and two suspensions year-to-date through the end of October. For comparison, 22 dividends were cut and four were suspended over the same period last year.

Takeaway: Dividend distributions continue to be one of the most efficient methods by which companies can return capital to their shareholders. As such, investors often view consistent dividend payments and dividend increases as indications of strength. In the 96-year period between December 30, 1927, and December 29, 2023, more than 37% of the total return of the Index came from dividends. Remarkably, dividend growth estimates for the Index have increased since the start of the year. The Index’s 2024 dividend payments were forecast to total a record $77.24 per share on 11/18/24, up from $74.54 per share on 1/31/24. Furthermore, dividend sustainability appears to have improved since 2023. Just 12 dividends were cut and two were suspended this year (through 10/31), down from 22 cuts and four suspensions through October 2023.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. 

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The next blog will be posted on 11/26.