Doug Carey Blog | Dividend Payouts Keep Breaking Records | Talkmarkets
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I am the owner and founder of WealthTrace, which provides web-based financial planning software to both financial advisors and consumers.. I have over 20 years of experience in the financial markets and I am a Chartered Financial Analyst (CFA). I hold a masters degree in Economics from Miami ... more

Dividend Payouts Keep Breaking Records

Date: Wednesday, June 13, 2018 6:25 PM EDT

Key Points

--Because of lower corporate tax rates and other factors, dividend payouts are up.

--Dividend payouts are great; dividend payouts with regular increases in those payouts are even better.

--Moving more of a portfolio into dividend-paying stocks can reduce volatility and increase the chances of a plan succeeding.

For the first time in at least 15 years, no S&P 500 company cut its dividend in the first quarter.

A lot of this has to do with lower corporate tax rates, which now top out at 21% instead of 35%. Companies appear to be passing along a lot of the earnings bump to investors. We were already on a roll as far as that goes, though: 2018 looks like it will be the seventh straight year of record dividend payments.

Overall, the companies in the index have increased their dividends by 5.5% year over year. What does this tell us?

Growth Is Health

We have talked about the importance of building a portfolio of companies with growing dividends. Dividends obviously matter to investors--especially retirees--because of the income they provide. But dividends that consistently grow over time can be a sign of a company that is confident in its cash flows. You can find companies that have paid increasing dividends every year for 40 years or more, through good economic times and bad.

Total Returns = Dividends + Capital Appreciation

Let's take a step back and look at the big picture.

A paper a few years ago (pdf) from Guinness Atkinson Asset Management broke down, by decade, what percentage of the S&P's total return came from dividends. The average dividend portion of total returns by decade, going back to 1940, is more than 50%. As the paper states, in stretches of low growth like the 1940s and 1970s, dividends accounted for more than 75% of total returns.

There's a great line in the paper--maybe it's an old saying, but it's one that we've never heard before: "Profits are a matter of opinion, dividends are a matter of fact." This refers to how earnings can be manipulated via accounting, but cash in your pocket (or reinvested, or however you handle your dividends) is real.

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