Dividend Divinity, but Payout Ratios Remain Low

January 6th at 12:39pm by Todd Shriber

Throughout 2013, it was apparent the year was shaping up to be an excellent one for dividend investors and the fourth-quarter numbers confirm as much.

“Net dividend increases rose $12.7 billion during the fourth quarter of 2013 for U.S. domestic common stock, compared to an $8.4 billion increase in the fourth quarter of 2012. 885 dividend increases were reported during the quarter, significantly lower than the tax incentivized 1,266 companies which raised dividends in 2012, but up 36.4% from the 649 companies which raised dividends in 2011,” according to S&P Dow Jones Indices.

Overall, 2,895 companies boosted their payouts last year, up slightly from 2,887 in 2012. The better news is that 2014 could be another record year for dividend increases.

“Dividends had a great year, with the actual cash payment increasing over 10% to set a new record,” says Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, in a statement. “Even the fourth quarter payments increased 6% year-over-year which speaks to the growth given how many companies paid their Q1 2013 dividend in Q4 2012. Payout rates, which historically average 52%, continue to remain near their low at 36%. At this point, we expect Q1 to be a very busy positive period for dividends, with 2014 setting another record for payments.”

In addition to individual dividend stocks, investors have embraced dividend ETFs in a big way. Dividend ETFs hauled in $29 billion last year, making the group the most prolific asset gatherer among so-called smart beta funds. [No Surprise: Record ETF Inflows in 2013]

Six dividend funds currently rank among the 100 largest U.S. ETFs. Nearly 84% of S&P 500 constituents pay dividends while all 30 members of the Dow Jones Industrial Average pay dividends. Just last month, 3M (NYSE: MMM), Boeing (NYSE: BA) and General Electric (NYSE: GE) announced dividend increases.

At $11 billion, Exxon Mobil (NYSE: XOM), the largest U.S. oil company, was the Dow’s biggest dividend payer last year. AT&T (NYSE: T) was next at $9.84 billion followed by GE at $8.17 billion. [Dow Jones Industrial Average Year in Review]

“Just as important as the ability to pay is the resurrection of a friendlier atmosphere for total shareholder return. S&P Dow Jones Indices believes that this should translate into another strong, record setting dividend year for 2014 and a strong increase in share buybacks,” said Silverblatt.

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