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What’s better than getting a big dividend from an S&P 500 stock? Getting an even larger one.
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And that’s possible to find in the S&P 500 as many companies are hiking dividends again — including some with high dividend yields already. In fact, eight S&P 500 companies already yielding 4.5% or more including consumer staple Altria Group (MO) plus energy firms like Kinder Morgan (KMI) and Williams (WMB), this year announced dividend hikes, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Such companies continue to be the exception not the rule, though. “Stock prices may be at all-time highs, but not dividends,” said Charles Toole, portfolio manager at Adviser Investments in Newton, Mass. “Investors who rely on dividends for income are in for a wait.”
S&P 500 Dividends Inch Up
Stocks are flying higher. Dividends are not.
The S&P 500 is up more than 20% this year. And the index notched more than 50 all-time highs this year, says LPL Financial. At this pace, the S&P 500 would set 78 new highs. That would just top the previous record of 77 all-time highs in 1995.
But at the same time, the S&P 500 is yielding just 1.25%. That’s down from its 1.5% yield coming into 2021. And that’s even after 46% of the companies in the S&P 500 announced dividend hikes this year.
What’s the issue? Most S&P 500 companies remain relatively stingy with their dividends. S&P 500 companies only paid out $14.58 a share in dividends in the second quarter, down 5% from the first quarter 2020 high of $15.32, Toole said, citing data from S&P Dow Jones Indices.
“This is frustrating for investors that rely on dividends for income, as the cost of goods, as measured by CPI, are up 5.5% over the same period,” Toole said. “Costs rising faster than your income is a recipe for instant noodles, not steak dinners.”
Finding Rising S&P 500 Dividends: Altria
When it comes to an S&P 500 stock with a high yield that’s boosting dividends, tobacco stock Altria is tough to beat. The company is yielding more than 7%, putting it at the top of the heap in terms of yield among S&P 500 stocks. But it’s also boosting dividend payments.
Back in August, Altria announced a roughly 5% hike in its quarterly dividend to 90 cents a share. It has now paid out $3.44 a share in the past 12 months. Investors keep piling into the stock, pushing it up nearly 24% this year. And it’s only due to the massive jump in the stock price that Altria’s yield is down from 8.4% at the start of the year, despite paying out more dividends. All things held equal, dividend yields fall when a stock rises. A dividend hike will offset that mathematical reality, though.
Energy Is A Source Of Rising Dividends
This year’s comeback in oil prices stings at the pump, but it soothes in the portfolio.
Energy firms like Kinder Morgan and Williams already each yield 6.6%. And yet, both bumped up their dividends this year. Kinder took its dividend up 3% to $1.08 a share annualized in April. It’s now paying 6.5% more than it did coming into the year. And Williams notched up its quarterly dividend by 2.5% in January to $1.64 a share annualized.
Again, though, the dividend hikes aren’t keeping up with stock price gains. Kinder Morgan shares are up more than 18% this year and Williams is up 22.8%. That’s keeping a lid on yields, despite higher dividend payouts. Meanwhile, the Energy Select Sector SPDR (XLE) is up more than 27% this year, but it’s still yielding 8.2%.
What’s Next For S&P 500 Dividends
Investors, so far, don’t seem interested in chasing rising dividends, either.
Shares of the eight S&P 500 stocks yielding more than 4.5% this year that announced dividend hikes are only up 12.3% in 2021, trailing the S&P 500’s gain. And shares of the 228 S&P 500 companies to announce dividend hikes this year are only up 20.8% on average this year, roughly in line with the S&P 500. Additionally, the SPDR S&P Dividend ETF (SDY), which owns S&P 1500 stocks with rising dividends is only up 15.9% this year.
But Toole says more dividend hikes may be coming. Futures markets show investors expect S&P 500 quarterly profits to hit a new high in the first quarter of 2022.
“Dividends are still playing catch-up. Unfortunately, the drought may last for several more months,” Toole said.
Big S&P 500 Payers Hike Dividends
Companies yielding 4.5% or more than announced dividend hikes this year
| Company | Symbol | Yield now | Yield % change in the last 12 months | Stock price YTD % ch. | Sector |
|---|---|---|---|---|---|
| Altria Group | (MO) | 7.06% | 4.9% | 23.9% | Consumer Staples |
| Kinder Morgan | (KMI) | 6.61 | 6.5 | 18.2 | Energy |
| Williams Companies | (WMB) | 6.57 | 6.6 | 22.8 | Energy |
| Chevron | (CVX) | 5.50 | 9.5 | 14.9 | Energy |
| International Business Machines | (IBM) | 4.70 | 1.6 | 9.7 | Information Technology |
| LyondellBasell Industries | (LYB) | 4.72 | 3.1 | 3.3 | Materials |
| Verizon Communications | (VZ) | 4.53 | 3.1 | -6.7 | Communication Services |
| Unum Group | (UNM) | 4.54 | 3.6 | 14.4 | Financials |
Sources: IBD, S&P Global Market Intelligence
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