S&P 500 Index Dividend Payout Profile
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Companies often return capital to their shareholders through dividend distributions. The practice is so common that as of 4/6/23, 397 of the constituents in the S&P 500 Index (“the Index”) distributed a cash dividend to shareholders. There are currently 503 stocks in the index. In addition to acting as a conduit for 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 38% of the total return of the Index over the 95-year period between December 30, 1927, and December 30, 2022.

  • Data from Bloomberg indicates that the dividend payments from the constituents in the Index totaled $67.57 per share (record high) in 2022, up from $60.54 (previous record high) in 2021. As of 4/26/23, the estimates for 2023 and 2024 were $70.09 and $74.81, respectively. 
  • Of the 11 major sectors that comprise the S&P 500 Index, eight of them had yields above the 1.67% generated by the Index over the period captured by the table. Financials, Information Technology, and Health Care contributed the most to the Index's dividend payout at 15.23%, 14.78% and 14.69%, respectively. 
  • A dividend payout ratio of 60% or less is typically a good sign that a dividend distribution is sustainable, according to The Motley Fool. A dividend payout ratio reflects the amount of money paid out as a dividend relative to a dollar's worth of earnings. In Q4'23, the payout ratio on the S&P 500 Index was 35.25%.
  • 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. Year-to-date through 4/6/23 a total of six companies in the Index decreased their dividend distribution, and two companies suspended their payouts. For comparative purposes, not a single company in the Index suspended their dividend in 2022, and only five dividend reductions were recorded over the period.
  • Click here to access our last dividend profile post on 11/29/22.

Takeaway: Dividend distributions continue to be one of the most efficient methods by which companies can return capital to their shareholders. In 2022, the companies that comprise the S&P 500 Index distributed a record $67.57 per share to their equity owners. Additionally, dividend distributions have contributed meaningfully to the performance of the S&P 500 Index, over time. In the 95-year period between December 30, 1927, and December 30, 2022, more than 38% of the total return of the Index came from dividend distributions, according to data from Bloomberg. That said, investors may want to watch dividend sustainability over time. In our view, the recent uptick in dividend reductions and suspensions, while not severe, is a signal that certain areas of the Index may be coming under pressure as revenues contract and margins decline.
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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Posted on Thursday, April 27, 2023 @ 2:43 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.