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.

Roth IRA’s for Dividend Investors

Nothing is certain in this world except for death and taxes. For many dividend growth investors, this could be characterized as a feeling that they are being taxed to death. I am always on the lookout to legally minimize my investment taxes as much as possible. In fact there is an easy way to invest in dividend paying stocks without ever having to pay taxes on your investment.

The Roth IRA allows individuals who have earned income in a given year to contribute up to $7,000 in after-tax dollars to their retirement account for 2025. The contribution limit for 2024 was also $7,000.. There is a catch-up contribution of $1,000 for individuals who are 50 years of age or older. While contributions to Roth IRA’s are not deductible on your tax returns, earnings and principal distributions are tax free once certain age and time requirements are met. 

Roth IRA’s allow for tax-free compounding of capital over time. This means that you will not pay taxes on dividends or capital gains on your investments that are placed in a Roth IRA.

The earned income includes compensation from salary, wages, commissions, bonuses and alimony. Income from interest, dividends, annuities or pensions does not count as earned income in the eyes of the IRS.

A non-working spouse can set-up a Spousal Roth IRA, even if they have no working income, as long as the other spouse has enough working income to contribute. For example, if one of the spouses earns $50,000/year, and the other one stays home, they can each contribute $7,000/year to their own Roth IRA's. If they are over the age of 50, the $1,000 catch-up contribution still applies.

The contribution limit for a Roth IRA is the same as the contribution limit for a regular IRA. However the amount that can be contributed to a Roth IRA is the amount remaining after subtracting any contribution made to a regular IRA. This means that if you contributed the maximum allowable amount to your regular IRA of $7,000, you would not be able to contribute anything to a Roth IRA in that year.

There are no required minimum distribution rules for Roth IRAs. 

However, there are phase-out income limits for high earning taxpayers, which reduce the opportunity to use this tax advantaged investment account. A modified adjusted gross income (MAGI) of $246,000 for a couple filing jointly, or $165,000 for an individual makes you ineligible to contribute to a Roth IRA in 2025. The following table outlines the Roth IRA Contribution limits for 2025.

Source: Schwab

There are ways around it of course, using the "Backdoor IRA Conversion" Strategy.  Basically, it entails contributing to a Regular IRA, and immediately converting it to a Roth.

In order to avoid paying taxes on distributions from Roth IRA accounts, investors need to become acquainted with the qualified nontaxable distribution rules.

According to the IRS, qualified nontaxable distributions for Roth IRA’s are those made at least 5 years after the taxpayer’s first contribution to a Roth IRA and made:

1) After the taxpayer become 59.5 years old
2) To a beneficiary after the death of the taxpayer
3) Because the taxpayer becomes disabled
4) For a use of a first time homebuyer

The biggest benefits of a Roth IRA are the long-term tax free compounding of capital, the fact that qualified distributions are tax-free and the fact that there are no required minimum distributions.

Another little known fact behind Roth IRA’s is that direct contributions may be withdrawn at any time. 

This makes them a perfect investment vehicle for investors who plan on retiring early and living off dividends before they reach typical retirement ages of 60 years.

I hold a portion of my assets in a Roth IRA. While the contribution limit is only $7,000, that is still a good start. For a married couple maxing out their Roth IRA's, you have $14,000 to invest. 

In today's commission free world and fractional shares, you can build a diversified portfolio fairly easily.

Dividend Champions List for 2025

A dividend champion is a company which has a 25 year record of annual dividend increases. There are only 146 such companies in the US today. I believe that becoming a dividend champion is no accident, and it is a result of a strong business that has generated earnings growth for a long period of time. These are the types of businesses I like to study, and potentially consider at the right time for my dividend portfolio. I believe that the dividend champions list offers a more complete picture than the dividend aristocrats.

The creator of the Dividend Champions list was David Fish, who unfortunately died in 2018. I decided to do annual updates based on his work.

This year, I decided to keep it simple, and kept the data per each company to a minimum.

As a starting point, there were 145 companies on the dividend champions list at the end of 2023.

There were six companies that ended up leaving the Dividend Champions list in 2024. These companies left for various reasons. The companies that left include:

- Cambridge Bancorp (CATC) was acquired

- First of Long Island Corp (FLIC) failed to raise dividends in 2024

- The following four companies cut dividends in 2024 - Leggett & Platt (LEG), 3M Company (MMM), Telephone & Data Sys (TDS), Walgreen Boots Alliance (WBA)

There were seven companies added to the list in 2024. These companies achieved dividend champion status by raising dividends to shareholders for 25 years in a row. The companies include:

Bank of Utica                         BKUTK

Eagle Bancorp Montana         EBMT

Eversource Energy                 ES

Fastenal Company                 FAST

FactSet Research Systems FDS

First Farmers Financial Corp. FFMR

Graco Inc.                         GGG

All of this brings the list of dividend champions to 146 companies by the end of 2024. You can download the list from here.

Thank you for reading!

Relevant Articles:

- Dividend Champions, Contenders & Challengers: The most complete list of US dividend growth stocks available
- October 2018 Dividend Champions List
- December 2018 Dividend Champions List
- RIP David Fish

On dividends and stock price fluctuations

It's fascinating that US Dividends rarely decrease.

They have gone up every year, for over 80 years.

The only decreases in US dividend payments in the past eight decades or so have been only during major recessions like 2008.

You can see that the dividend income stream is very stable, whereas share prices do fluctuate a lot above and below any reasonable estimate for intrinsic fair value. Hence, my retirement strategy is focusing on generating a certain amount of dividend income, and not achieving a certain amount of worth.

After all, dividends are easier to predict and rely upon. It is hard to estimate what future stock prices will be.

This of course assumes you hold a diversified portfolio of US Equities.  Overall dividend payments in a diversified portfolio increase, because the number of dividend increases each year outweighs any dividend cuts

That chart above accounts all the cuts out there. But there were so many other companies that increased dividends, that overall income still increased.

You can view the number of dividend increases for S&P 500 companies versus dividend initiations, dividend decreases and dividend suspensions over the past 20 years below:

It clearly shows that dividend increases outnumber dividend decreases. Even during the largest recession since the Great Depression.

 

US Dividends have also increased faster than inflation as well.

 

You can see that dividends are more stable, predictable and thus easier to rely upon as a source of income in retirement. On a portfolio level, and individual security level, I can predict how much dividend income I will generate in the next year. However, I cannot predict how much the prices of my portfolio would be in an year. Hence, why I focus on the stability of the dividend income stream.

As you know, I do a lot of work on security selection, in order to ensure my portfolio is built from a solid base. I do focus on fundamentals and valuation when I add companies to the portfolio. Once I buy a security, I hold for as long as the dividend is not cut or the security is acquired. That could mean that I hold a security for 1 year or 50 years.

I usually ignore share price fluctuations, but focus on fundamentals. Since dividends are more stable and reliable and predictable than share prices, I focus on the dividend and ignore the share price. One exception is if I want to take advantage of low valuations to pounce on an opportunity.

I could not care less if my retirement portfolio value fluctuates above a certain amount or below it.

I care about the amount of dividend income I can safely generate from my portfolio, which grows over time.

As long as I generate enough dividend income to pay for my expenses, I am a happy camper.

Let me give you an example, before I move on to the list of companies I bought this month:

During the Global Financial Crisis, shares of Coca-Cola $KO fell from $31 in 2007 to $19 in 2009.

Yet, the quarterly dividend increased from $0.17/share in 2007, to $0.19/share in 2008 to $0.205/share in 2009.

This is why I focus on dividends and ignore share prices.

Dividend Aristocrats Kept Raising Dividends in 2024

The Dividend Aristocrats list includes S&P 500 companies which have managed to increase dividends for at least 25 consecutive years. 

I compiled the dividend increases for 2024 for this list, along with relevant other information, such as valuation (forward P/E and dividend yield), 5 year annualized dividend growth and dividend payout ratio. You can also see the streak and dividend increase for 2024 as well. 

You can view the list from here:

You can download the list from here:

The average dividend increase was 5.95% in 2024.

The smallest dividend increase was from Emerson Electric at just 0.48% in 2024. The highest dividend increase was from Sherwin-Williams at 18.18% in 2024.

Note that this list does not include the companies that were deleted in 2024 due to dividend cuts.

There were two companies that cut dividends in 2024 - 3M and Walgreen's.

Ironically, 3M raised annualized dividend rate in February 2024 to $6.04, before cutting the dividend by 53.64% to $2.80/year annualized in May 2024.

Walgreen's cut dividends in January 2024 by 47.92% to $1/share.

Both companies were booted out of the Dividend Aristocrats list after the cuts.

The overall rate of dividend increases for the dividend aristocrats was still impressive, even if we look at those dividend cuts though. This is where diversification is helpful. If one company cuts dividends, there are many others that raise dividends. This compensates for the small loss in income, and even more helps grow overall income on its own.

Also note that not all of those dividend aristocrats are good investment options in my opinion.

In order to narrow the list down, I would look at various criteria such as:

1. Trends in earnings per share

2. Last Dividend Increase

3. Valuation

I discussed how I actually did that and the list of companies for review in my premium newsletter last year. 

Thank you for reading!