Public companies - both large and small - are opting to pay
The percentage of S&P 500 companies (SNP:^GSPC) paying
dividends is now at the highest level recorded in the past 15 years
(83%) and even payout ratios for mid-cap (NYSEARCA:MDY) and small
cap (NYSEARCA:IJR) companies are at multi-year highs, reports
Microsoft (NASDAQGS:MSFT) just announced a 22% increase in the
company's quarterly dividend to 28 cents, payable to shareholders
of record as of Nov. 21.
S&P 500 aggregate dividend payments topped $82.6 billion for
Q2 2013 (July 2013) and over the trailing twelve months were 37.6%
greater than the ten year average.
A stock's dividend payout ratio is the fraction of net income a
corporation pays to its stockholders in dividends.
A stock's dividend payout ratio is different from its
dividend yield. The latter is calculated by dividing a company's
share price by the dividends it paid. For example, a $20 stock with
a $1 annual dividend carries a dividend yield of 5%.
In 1999, the S&P 500's dividend yield bottomed at 1.14%
because stock prices rose faster than both dividend payments and
earnings. This unsustainable trend was corrected during the 2000-02
bear market when the stock prices fell 47%.
Although the S&P 500's aggregate payout ratio (31.8%) has
rebounded from 2010 levels, the historical dividend payout ratio
for the S&P 500 has actually declined from 56% of operating
earnings in the 1960s.
Mix ETF Portfolio
generated a 10.7% yield from August 2012 to August 2013 using a
combination of dividends and selling monthly covered call
Smallcompany stocks (NYSEARCA:IWM) tend to have very low or even
zero payout ratios because they use earnings to reinvest and grow
their businesses. Once they mature, however, they tend to return
capital to shareholders via dividends.
At the end of Q2, telecommunications (NYSEARCA:IYZ) and
utilities (NYSEARCA:XLU) had the highest payout ratios among all
industry sectors for the tenth straight quarter.
ETFs focused on dividend paying stocks include the Vanguard
Dividend Appreciation ETF (NYSEARCA:VIG), ALPS Sector Dividend Dogs
ETF (NYSEARCA:SDOG), and the iShares Select Dividend ETF
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