Dividends are a great tool that can help amplify your investment and produce a nice income stream.  Not all dividends are created equal and there is certainly a level of due diligence that is required, particularly with the higher yielding stocks and assets, to avoid income traps that promise healthy yield, but lack the cash or assets to pay the yield. Additionally, it would benefit the potential investor to complete a dividend check up of the company to determine how many times they have cut dividend yield in their corporate history, how many times have the raised the dividend yield, etc.

Dividend Growth S&P 500

Double digit dividend growth rates

Looking at dividend data from the third quarter for the S&P 500, we saw an overall gain in dividend per share (DPS) of 11.3% to nearly $38 (trailing year).  This quarter is yet another of double digit dividend growth rates, the 15th consecutive quarter of double digit dividend per share growth.  Over those 15 quarter, the average quarterly growth comes out to 14.2%, so while the third quarter data came in slightly below the average, it still represents a continuation of the trend.  The largest quarterly growth gain in DPS data came in the fourth quarter of 2010, when we saw the sectors combine for 27.9% dividend growth.  In the S&P 500, 84%, or 421, of its components pay a dividend of some sort, and 337 of those companies raised dividend yield over the past year.

On a sector-by-sector basis for third quarter 2014 dividend growth data, we see the top dividend per share gains in Consumer Discretionary gain 18.8%, Financials at 17.6%, Telecom Services at 15.5%, Energy at 14.6%, Information Technology at 13.6%, and Industrials came in at 12.2%.  Materials had the worst dividend performance and was the only sector to show a dividend contraction during the third quarter, at -6.6%.  Overall, S&P 500 had a trailing 12 month dividend payout ratio of 32%, marking the highest level since the first quarter of 2010, when it hit 33.1%.  This is further made sense with the data that shows dividend growth sprouted 11.3% in the past year, compared to earnings per share growth of only 7.6%.

2015 dividend growth forecast to come in at 8.3%

As of this writing, dividend growth for 2015 is forecast by Factset to come in at 8.3% and represents a closing of the “double digit quarterly DPS growth” for the S&P 500.  Financials are predicted to have the strongest dividend performance next year, up 14.8%.  Financials are followed by Consumer Discretionary sector, which is forecast to see dividend growth of 10.3%.  All other sectors are forecast to come in at single digit levels, as the current sector dividend growth rates continue to show levels above the ten year reading, but lower than last year.  Overall, dividends could take a hit next year if or when the Federal Reserve raises interest rates and I do believe that is why dividend growth is forecast to fall into the single digits for 2015.

Disclosure: None