Dividends Are Booming, With Plenty of Room For More Hikes: We Name Names
Earnings growth rates are slowing, but Corporate America isn’t turning off the dividend spigot. S&P Dow Jones Indices says net dividend payouts increased $8.8 billion in the third quarter, a figure S&P dividend major domo Howard Silverblatt believes to be a quarterly record. For the year, cash payouts are 19% higher according to Silverblatt.
There’s no fundamental reason why the payouts can’t continue. The current 34% average payout ratio for dividend-issuers in the S&P 500 is well below the historic average of 52%.
The one potential rain cloud hovering over the dividend parade is what happens to the tax rate on qualified dividends. Since 2003 dividends have been taxed at a maximum of 15%, rather than as ordinary income (top current rate 35%.) S&P’s Silverblatt estimates that investors have pocketed an extra $358 billion since the rate was lowered in 2003. But all Bush tax cuts are scheduled to expire at the end of this year; we won’t have a clue what is going to happen until Congress focuses in the post-election lame-duck session.
But as explained in this YCharts post, Fidelity Investments says it doesn’t expect a change in dividend taxation to cause the dividend spigot to run dry. Moreover, plenty of companies have consistently paid-and increased-their dividend to shareholders, across decades of changing tax policy. General Mills (GIC) has paid a dividend for more than 100 consecutive years—longer than the federal tax code has been in existence.
For other long-term dividend hikers, you can trawl through the portfolio of the SPDR S&P Dividend ETF (SDY). This ETF cherry picks the highest yielders among companies in the S&P 1500 that have managed to increase their dividends annually for at least the past 20 years. Current top holdings include Pitney Bowes (PBI), Leggett & Platt (LEG) and AT&T (T).