Investors may be waiting for stocks to return to their highs of fall 2007. But dividends are already there. U.S. companies are scheduled to boost their dividend payments in the second quarter by $12 billion, pushing the payout to a record, says S&P Dow Jones Indices. All told, investors received a 14% boost in dividend cash payments in the second quarter.
The turnaround in dividends has been breathtaking. During the second quarter, 505 U.S. companies boosted their dividends. That comes after 677 companies did so in the first quarter. Compare that with the 37 companies that cut their dividends in the second quarter and 31 that cut their dividends in the first quarter, and you can see that shareholders, overall, are coming out on top.
Not only are dividends being paid at record levels, but they're very competitive compared with investors' other options. The Standard & Poor's 500 is currently yielding 2.0% a year. That means investors can get more income from dividends than from the 10-year Treasury, which is currently yielding 1.5%.
And while dividends are already at record levels, expect them to rise further, some say. S&P Dow Jones Indices predicts dividends will rise again this year, by 16%. If forecasts are correct, 70% of the stocks in the Standard & Poor's 500 will boost their dividends this year.
Companies can certainly cut their dividends at any time. But the current level of dividends is easily affordable for companies writing the checks. S&P 500 companies are only paying out 31% of their earnings in the form of dividends, down considerably from the 52% of earnings companies have traditionally paid out.
It's not all rosy, though. Thanks to tax-cutting regulation in 2003, most investors pay just 15% tax on their dividends. However, unless Congress takes action, that dividend tax rate could jump. For some taxpayers, the tax rate on dividends could jump to 43.4%, S&P Dow Jones Indices estimates. If nothing happens, some investors may choose to sell shares of some dividend-paying stocks before the end of the year.
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