This S&P 500 milestone begs the question – are you taking advantage of dividends?
Even during past market uncertainties, dividends have provided a stabilizing element to investor portfolios. S&P 500 dividends have increased the last 41 of 44 years1 – certainly a more consistent history of growth than the S&P 500 index price itself. The S&P 500 actual cash dividend reached $400 billion just 3.5 years after it hit $300 billion,2 and may have further room to grow, going forward. According to CNBC, we are on track for $500 billion in dividends by the end of the year.3
There are many investors who undervalue the potential of dividends. Dividends, however, continue to push for record milestones. Even as dividend growth slowed in the Energy and Material sectors this past year, the S&P 500 actual cash dividend increased 3.59% in 2016 and over 192% from 2000 to 2016, while the index price of the S&P 500 increased just under 70% over the same timeframe.2
Data as of December 31, 2016.
Our research indicates S&P 500 dividends should grow again in 2017, especially with key changes in tax policy. A one-time foreign asset repatriation holiday could bring trillions of dollars back into the United States, giving companies the capital to conduct research, grow their operations, and conduct significant dividend increases and share buybacks. Lower corporate taxes, which are expected to pass at the end of the year, will also expand corporate profits and give companies significant room to grow their dividend. Finally, as the economy expands, corporate profits are expected to grow on their own, again giving companies room to grow dividends and potentially supporting dividend growth investment strategies.4
As of the end of 2016, the sector with the top dividend contribution was Information Technology, with the Financials sector following closely behind2. In the past, the Financials sector led the S&P 500 in dividend payouts, but it has fallen behind as of September 16, 2016, when the sector was broken off into two and the Real Estate sector was introduced. The Materials and Energy sectors also provided larger dividend payout contributions in the past, but have fallen recently on weaknesses in the sectors. Now, there is potential that this could improve going forward.
Finally, according to our research, there is the possibility of large-cap companies introducing dividends. These moves could cause significant moves in the S&P 500 actual cash dividend. For example, if Google were to introduce just a 1% dividend, it would add over $2.7 billion to the actual cash dividend of the S&P 500, annually. Berkshire Hathaway, Amazon, Facebook, and Biogen could add over $1.1 billion, $3.8 billion, $3.4 billion, and $585 million to the S&P 500 actual cash dividend, respectively.4
This combination of factors indicates there is the potential for meaningful dividend growth ahead in 2017. At Reality Shares, we are solely focused on dividend growth investing and offer a range of alternative ETFs that pinpoint and capitalize on investment in dividend growth and the stocks that are most likely to increase their dividends, as well as avoiding those that are most likely to cut their dividends. Our rules-based, forward-looking methodology sets us apart in the market and allows investors to access and harness the power of dividend growth investing. Our proprietary DIVCON scoring system systematically ranks companies’ future dividend growth prospects based on a weighted average of seven quantitative factors that are correlated to dividend growth.
1 Standard and Poors and Reality Shares Research
2 Howard Silverblatt, Standard and Poors
3 CNBC, “Like a lion: Roaring ETFs on pace for $500 billion this year”, May 01, 2017
4 Reality Shares Research