American corporations in 2020 will pay record dividends. Shareholders of companies included in the S&P 500 index will receive more than $ 500 billion. This has not happened in the history of the index.
At least 330 of the largest US companies will increase the amount of dividends this year. So says S&P Dow Jones Indices lead analyst Howard Silverblatt. According to estimates of the company whose shares are part of the S&P 500 index, a total of more than $ 500 billion will be paid to shareholders. “Only an extraordinary event can prevent such record payments,” Silverblatt said.
The largest American corporations increase dividend payments from year to year since 2009. In 2018, the total amount of dividend payments increased by 8.7%, and in 2019 – by 6.4%, reaching $ 485.5 billion, writes The Wall Street Journal.
Plans to increase dividends in 2020 have already been reported by pharmaceutical companies Pfizer and Abbott Laboratories and telecommunications giant AT&T. Most dividends are usually paid in the first quarter of the year. Having reported on the results of the last quarter and the whole year, companies delight holders of their shares with dividends before the traditional annual meeting of shareholders.
Why are companies increasing the size of dividends?
The tendency of companies to increase the size of dividends is not surprising – a steadily growing business, ready to share profits with shareholders, is attractive for investors. But the reduction in dividends can raise many questions about the state of the business and its prospects.
Here is one illustrative example. GameStop shares plummeted in one day at 36% in June 2019 after the company announced the termination of dividend payments due to falling sales and lower quarterly earnings.
Investors show interest in dividend strategies
In the fourth quarter of 2019, more than $ 10 billion was invested in dividend-oriented exchange-traded funds. Such an inflow of capital to these funds was not observed throughout the year, said Todd Rosenbluth, head of ETFs and mutual fund research at CFRA. According to the expert, investors showed particular interest in ETFs focused on companies that constantly increase their dividends. Such funds not only guarantee dividend income, but also provide an opportunity to participate in the growing stock market.
By paying and increasing the size of dividends, company executives seek to assure investors of its reliability. Almost 84% of the companies in the S&P 500 index consistently pay dividends. Surprisingly, among them there are no technology giants Facebook, Amazon, Netflix and Alphabet – the parent company of Google.
Despite the fact that the volume of dividends paid by American companies in 2019 increased, the average yield of securities decreased. But this indicator can be explained by the growth of stock prices: dividend yield is the ratio of the annual dividend to the share price. Compared to the beginning of last year, the average dividend yield of S&P 500 companies decreased from 2.16% to 1.8%, according to FactSet.