2024 was a record year for US Dividends

The year 2024 was a record one for US Dividends. This was fueled by continued increase in earnings and by the initiation of dividends for the first time from some big heavy-weights like Meta, Alphabet etc.

S&P 500 paid a record dividend of $74.83 in 2024, which is a 6.40% increase over the dividend of $70.30 for 2023.

This was the 15th year of consecutive annual dividend increases for S&P 500.

Basically the entire US Stock Market is just one large Dividend Growth Stock.

This chart below shows the S&P 500 annual dividend per share since 1977.

You can see that annual dividends on the S&P 500 increased from $.86 in 1977 to $74.83 in 2024.

This was fueled by growth in earnings on US companies. Earnings for the S&P 500 increased from $10.87 in 1977 to $192.42 in 2023. The 2024 data is not available yet, but earnings are on track to grow in 2024. 

You can view the changes in dividend policy per company in S&P 500 over the past 20 years below.

You can see that the number of companies that announce dividend increases always tends to exceed the number of companies that announce dividend cuts and suspensions. That's visible during periods of economic expansion. It's also visible during otherwise difficult times such as 2008, 2009 and 2020.

All of that is driven by the fact that on average and over time, US Businesses tend to grow profits. They also end up generating more cashflows than they can intelligently deploy at a high rate of return in the business. Hence there is a growing pile of cashflows, which increases over time, which gets distributed to shareholders in the form of rising dividends.

There has been a shift in the past 25 - 30 years however (if not longer), where companies set a certain dividend payment that they increase over time BUT then they also use any remainder cashflows to pursue share buybacks. Share buybacks are basically treated like special dividends by corporate boards, on average, as they are lumpier than dividend payments. At least that's what the data from the past 26 years show us:

The Dividend Yield on S&P 500 Index is however close to its lowest in over 20 years. In previous markets, a Dividend Yield on S&P 500 at around 1% indicated a major high in share prices.  Today, it is not as easy to define that, given that US companies distribute almost one and a half to two times as much on share buybacks than dividends on the aggregate. 

The Dividend Yield on S&P 500 on Dec 31, 2024 was 1.27%. For example, on December 31, 2021, the dividend yield on S&P 500 was also 1.27%. This was followed by a difficult 2022, that witnessed a rare bear market for US Equities.

During the heights of the Dot-Com bubble, the dividend yield on S&P 500 dropped to as low as 1.14% in the year 2000.

Prior to 1995 however, dividend yields on S&P 500 at or below 3% typically indicated a major top in equities. This indicator had forecasted the 1907 crash, the 1929 crash and the the 1987 crash. Albeit, since 1995 however, it would have been wrong to avoid equities. I am providing this narrative to share that you should not be blindly following rules, even if they had worked successfully for many decades before that.

Of course, not all dividends are created equal. I prefer to invest in companies that regularly increase dividends. Requiring a consistent track record of regular dividend increases over at least 10 years narrows down my investment universe to a little over 300 companies. This helps me to focus on quality companies, with solid competitive advantages, which grow and distribute excess cashflows to shareholders.

Companies that grow dividends are best-of-breed. By paying a dividend, they focus on best projects with highest expected returns. Most companies cannot reinvest everything back at a high rate of return, hence they send dividends our way. In other words, paying a dividend actually ends up unlocking value, because otherwise that money would have sat on the balance sheet without earning much return or worse, it would have been wasted on some management pet project ( or corporate jets). But because managements of dividend growth companies focus on highest return projects when they reinvest money, they also have discipline, and ultimately end up growing earnings. Those growing earnings tend to help in growing dividends per share and intrinsic values over time. Reinvesting those growing dividends further turbo-charges income and shows the miracle of compounding.