Despite Another Record Quarter For Dividends, Expect More Challenging Times Ahead

April 6, 2023

minute read

While dividends continue to grow, it is apparent that 2023 will be a challenging year.

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It was reported in the first quarter of this year that investors in the S&P 500 were paid a record $146.8 billion, approximately 7% more than was reported in the first quarter of last year.

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Another record dividend payout for the S&P 500

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Q1 2023: $146.8 b.
Q4 2022: $146.1 b.
Q1 2022: $137.6 b.

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Dividend yields averaged out to 1.7% in 2022, the year of a record dividend payout and buyback program.

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S&P 500

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Buybacks: $930 billion (up 5.5% year over year)
Dividends: $564 billion (up 6.4% year over)

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Goldman Sachs reports that buybacks for Q1 are currently at $364.4 billion, up from $357.1 billion authorized at the same time last year. However, authorizations (announcements that a company has authorized the repurchase of shares but hasn't begun the process yet) are $364.4 billion.

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How are dividends paid?

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There has been an uptick in dividends in recent years. According to the S&P 500 Index, there were 399 companies that paid dividends last year (nearly 80% of them). Of those 333 companies, 83 percent (333 of them) increased the dividends on their stock. The payouts of only five companies decreased during this period.

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It is expected that this trend will continue into 2023 as well. It is noteworthy that of those 132 companies, 132 of them increased their dividends in the first quarter. A total of eight companies have decreased their dividends in the last year.

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Dividends may have a tougher time in 2023

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In spite of the good news for dividends, there is some bad news for the rest of 2023: They will likely grow much slower than they did in recent years.

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Despite a slowdown in dividend growth, dividends are still growing

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Q1 2023: 9.5%
2022: 11.8%
2021 11.8%

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It's a worry for many investors that the double-digit gains they've become accustomed to and have become accustomed to in the last few years will not materialize, according to Howard Silverblatt of S&P Global. “2023 will bring a record dividend payment to shareholders,” Silverblatt said.

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In Silverblatt's view, dividends are highly dependent on strong corporate cash flows, and they may be lower in 2023 as a result of recent events and the current state of the economy.

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As well as changes in inflation, interest rates, and consumer spending, there are also several factors that can affect the forecast of dividend payments in 2023," he said.

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In particular, Silverblatt focused his attention on bank stocks.

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Considering the banking crisis, it's likely dividends won't be increasing as much given the market doesn't like uncertainty. The financial sector, for example, accounts for 14% of dividends paid out.

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What do dividends mean to you?

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As S&P stock prices continued to decline last year, investor interest shifted back to dividends. While a dividend yield of 1.7% may not seem like much, many investors reinvest dividends, which compound over time.

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In the S&P 500, over the past 86 years, prices have increased 61%, while dividends contributed 39%, assuming dividends were reinvested. Since 1926, the S&P 500 has returned an average of 10.2% a year.

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Returns on the S&P 500 between 1926 and 2022

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