Outside of the energy sector, shareholders in dividend paying companies have had a very good year. S&P 500 firms have paid out well above-average dividends so far in 2015, and the dividend payout total in the third quarter was the largest in more than a decade.
According to a December 16th report from FactSet, S&P 500 shareholder distributions (total dividends plus gross share buybacks) totaled up to $259.8 billion at the end of the third quarter. Of note, that represents the highest quarterly total of shareholder distributions in ten years. Of interest, the second highest total was in the first quarter of 2014, when distributions totaled $252.2 billion. Keep in mind that dividends and gross share buybacks have been moving up steadily since the recession ended in 2010 (see chart below).
The FactSet report also highlights that aggregate dividend payments added up to 40% of total shareholder distributions. Dividend payments came to $103.3 billion in third quarter of 2015, which was the third largest quarterly total in more than a decade. That total was 1.6% less than in the second quarter, but 10.9% higher on a year-over-year basis. The total dividend payout for the trailing twelve months ending as of October totaled $410.8 billion, which was the biggest TTM payout in more than ten years. 3Q 2015 also represented the seventh straight quarter that the index hit a new high.
Breakdown of dividends by sector
Much like in the second quarter, the Financials and Information Technology sectors led all sectors in aggregate dividend payouts. The Financials sector made dividend payments totaling $17.5 billion in the third quarter and $70 billion on a trailing twelve-month basis. The IT sector distributed $14.6 billion in quarterly dividends and $60.9 billion in TTM dividends. Four out of the top ten firms ranked by TTM dividends (AAPL, MSFT, WFC, and JPM) were in Financials and IT.
Of note, Microsoft and Verizon were the only two firms among the top 10 to raise their dividends in the third quarter. Microsoft announced an increase to its dividend from $0.31 to $0.36 per quarter in September of this year. Verizon boosted its dividend by 2.7% to $0.565, the ninth straight year that the wireless firm manged to boost its quarterly dividend.
Energy sector dragged down dividend payers as a group
Poor results in the battered energy has led dividend payers in the S&P 500 underperformed non-dividend payers on a market- cap weighted cumulative return basis relative to the S&P 500 Total Return Index for over two years. However, the total return spread between the dividend payers and non-payers increased dramatically in the third quarter. As of October 31st, dividend paying stocks saw an excess weighted cumulative return of -52.8% relative to the benchmark, while non dividend paying stocks saw a return of 88.3% relative to the benchmark. This return spread (141.1 percentage points) is the highest in more than 15 years (the spread was 149.8 percentage points in the summer of 1999).
The primary factor behind this strong trend is the major revenue slump in the Energy sector. Energy firm balance sheets are tightening as debt repayment is becoming an issue in some cases, and keep in mind that the large majority of energy firms in the S&P 500 pay a dividend.