Dividends are still growing, but 2023 is going to be challenging. A record $146.8 billion was paid out to investors in the S & P 500 in the first quarter, about 7% higher than the first quarter of last year. S & P 500 dividends: Another record payout Q1 2023: $146.8 b. Q4 2022: $146.1 b. Q1 2022: $137.6 b. Source: S & P Global That averages out to a 1.7% dividend yield, and it follows a record year for both dividends and buybacks in 2022. S & P 500 Buybacks: $930 billion (up 5.5% year over year) Dividends: $564 billion (up 6.4% year over) Source: S & P Global Data on buybacks for Q1 are not yet available, but authorizations (announcements that a company has authorized shares to be repurchased but have not yet begun to repurchase) are running at $364.4 billion year to date, above the $357.1 billion authorized at the same time last year, according to Goldman Sachs. Who pays dividends? Dividends are on an upswing. Last year 399 companies in the S & P 500 (nearly 80%) paid a dividend. Of that, 333 of them (83%) increased their dividends. Only five decreased their payout. That trend is continuing into 2023. In the first quarter, 132 of those companies increased their dividend. Only eight decreased their dividend. The rest of 2023 could be tougher for dividends The bad news: Dividends are not growing as fast as they have in recent years, and the rest of 2023 may be much tougher. Dividends: still growing but at a slower pace (average increase in dividends) Q1 2023: 9.5% 2022: 11.8% 2021 11.8% What’s the problem? “2023 is on track for another record dividend payment to shareholders,” S & P Global’s Howard Silverblatt said, but the double digit gains investors have become accustomed to may not materialize for the rest of the year. That’s because dividends depend on strong corporate cash flow, which may be lower in 2023 “due to the state of the economy and recent events in the banking industry,”Silverblatt said. ” The uncertain forecast for 2023 dividend payments is also driven by several factors including changes in inflation, interest rates, and consumer spending,” he added. Silverblatt particular singled out bank stocks. “The market does not like uncertainty,” he told me. “Financials, for example, account for 14% of the dividends paid out. Given the banking crisis, it’s likely they may not be increasing dividends as much.” Why you should care about dividends Last year’s big decline in the price of S & P stocks re-focused investor interest in dividends. A 1.7% dividend yield may not seem like much, but many investors reinvest the dividends they receive, and the returns are compounded over the years. Re-invested dividends are a critical part of long-term returns. Since 1926, the S & P 500 has returned an average of 10.2% a year. Of that, 61% of the gain has been due to price increases, while 39% has been due to dividends, assuming the dividend has been reinvested. Total return S & P 500, 1926-2022 Avg. yearly return: 10.2% Price as % of total return: 61% Dividend as % of total return: 39% Source: S & P Global
