Articles for Financial Advisors

Stock Dividends

Stock Dividends

As of May 2014, 421 (or 84%) of the S&P 500 companies paid dividends. Excluding the 2007-2009 financial crisis, the number of companies in the S&P index paying dividends has been increasing for the past 10 years. The 20-year low for the S&P 500 dividend yield was 1.09%, reached in 2000 after the Internet bubble. The 20-year high of 4.25% was reached in 2009 as the financial crisis ended.

Financial service stocks represent the largest sector holding (15%) of dividend-oriented funds. The next biggest sector is industrial stocks, representing 12% of the typical dividend fund. The two largest dividend mutual funds are BlackRock Equity Dividend ($31 billion) and Vanguard Dividend Growth ($21 billion). There are roughly 80 dividend mutual funds.

For income tax purposes, dividends are classified as either being qualified or nonqualified. Most U.S. listed companies pay out qualified dividends. Qualified dividends are taxed at 0%, 15%, or 20%, depending on investor’s bracket. For taxpayers in the 39.6% bracket, qualified dividends are taxed at a 20% rate; these taxpayers also pay an additional 3.8% investment-income surtax. Nonqualified dividends are those from some foreign companies and all domestic REITs.

From 1940-2013, dividends represented 90% of the S&P 500’s total return. A $100 investment in the S&P 500 in late 1940 grew to $265,851 by the end of 2013 if dividends had been reinvested along the way. If dividends had not been reinvested, the hypothetical $100 investment grew to $17,470. In the 1970s, dividends represented 77.6% of the S&P 500’s total return; in the 1990s dividends accounted for just 25.4% of total return.


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Age 50 to 70 ½

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