Dividend growth is soaring, and there’s more to come

Share

Government bond yields are very low just about everywhere you look – from Canada and the United States to Portugal and Spain – but the variety in dividend yields is astounding.

Bespoke Investment Group ranked a number of stock market indexes, and corresponding market-tracking exchange-traded funds, based on their dividend yields, providing a nice snapshot of the range available to income-seeking investors.

No surprise, the S&P 500 is near the bottom of the list with a yield of just 1.9 per cent, ranking it at number 18 among 22 indexes. South Korea's Kospi index is last and Canada's S&P/TSX composite index is in the bottom half, with a 2.7 per cent yield. At the top: Spain's IBEX 35 with a 4.7 per cent dividend yield, the U.K.'s FTSE 100 with a 4.6 per cent yield and Brazil's Bovespa index with a 4.3 per cent yield.

The first reaction is to focus on the income-generating possibilities of the top-yielding indexes, which are downright dazzling next to the yields on government bonds. The yield on the 10-year U.S. Treasury bond is just 2.54 per cent and the yield on the 10-year Spanish government bond isn't much higher, at 2.72 per cent.

But dividend growth is also important – and here it is hard to ignore the S&P 500 on a number of levels.

According to Standard & Poor's, 425 companies in the U.S. index now issue a cash dividend, which is the highest number of dividend payers since 1997. For the 12 months before June 2014, there were 372 dividend increases, which is close to the higher number of dividends boosts in 12-month period in at least 10 years. And as for actual payouts, dividends grew 13.4 per cent in the second quarter, year-over-year.

Of course, it is hard to look solely at dividends these days when companies are also returning cash to shareholders in the form of stock buybacks. Buybacks and dividends combined totalled a record-high $241-billion (U.S.) in the first quarter, taking a small bite out of the gargantuan cash holdings of U.S. companies.

Those holdings, in the U.S. and abroad, were valued at more than $1.2-trillion in the first quarter, down slightly from $1.3-trillion in the fourth quarter – suggesting that there is plenty of cash left for additional buybacks and dividend increases in the months ahead.