Why Investors Should Expect Slower Dividend Growth in 2019

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Investors love their dividends, and dividends can account for as much as half of total returns over a typical buy-and-hold investor’s life. Dividends from major companies have been increasing for many years. What if that dividend growth is starting to slow down in 2019, as the bull market has reached 10 years of age?

S&P has reported that a combined total of $11.8 billion in dividend hikes was seen during the first quarter of 2019. The total S&P 500 quarterly dividend payments increased 7.5% from the first quarter of 2018 to $117.3 billion, but that $11.8 billion growth this quarter compared with the $18.8 billion growth that arose from the tax-cuts during the first quarter of 2018.

S&P further showed that the average dividend increase in the S&P 500 was 8.81% during the first quarter of 2019, down from growth of 13.92% during the first quarter of 2018. The total of aggregate dividend increases came to $16.5 billion in the first quarter of 2019 (versus $19.9 billion in the first quarter of 2018), while the aggregate dividend cuts increased to $4.8 billion from $1.0 billion a year earlier.

It’s not all bad news on the dividend growth front when you look at longer periods, but much of the 2019 gains after the first quarter still would have been around those tax-cuts. S&P’s report said:

For the 12-month period ending in March 2019, net dividends rose $51.3 billion, compared to a gain of $45.1 billion for the prior 12-month period, as increases were $63.1 billion versus $57.5 billion, and decreases were $11.8 billion compared to $12.5 billion for the prior period.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, also made a forecast for slower dividend growth in all of 2019 for the S&P 500 as a whole:

In the S&P 500, 2019 dividends are on track for a 5.4% gain over 2018 based on their current payout policies, potentially setting the stage for an eighth consecutive record year. At this point, Q2 policies and declarations point to a return to a record quarter, with the key question remaining the size of the increases.

While this slowing news may be of concern to the dividend gravy train investing community, it’s important to keep in mind that 2018 was an all-time record for paid out dividends and buybacks. Also worth noting, companies are still giving preference to share buybacks at this time.

S&P gave more specific data for the S&P 500 dividend growth as follows:

On a per share basis, Q1 2019 dividend payments for the S&P 500 increased 9.3% to $13.98, from the Q1 2018’s $12.79, but fell short of the Q4 2018 record of $14.19, which is historically consistent with payment patterns… On an aggregate basis, index components paid $117.3 billion in dividends this quarter, up from $109.2 billion for Q1 2018 and down from the record $119.8 billion in Q4 2018.

Some interesting statistics were also shown in the S&P report, but this is a general report rather than just pertaining to the three major S&P indexes. These figures were just for the first quarter. There were 777 dividend increases, compared to 948 a year earlier (down 18.0%), while 108 decreases were seen, down from just 167 a year earlier. The weighted dividend yield for paying issues was 3.56%, down from 4.01% in the fourth quarter of 2018.

Out of the S&P 500 as a whole, there are currently 418 issues (82.8%) that currently pay a dividend. That is up only three from the 415 listed as paying a dividend in the fourth quarter of 2018. As expected, all 30 members of the Dow Jones industrial average pay a dividend. Some 68.8% of S&P MidCap 400 stocks now pay a dividend, down from 69.8% in the fourth quarter of 2018. And of the S&P Small Cap 600 Index, 52.2% of issues were paying a dividend, up from 51.9% in the fourth quarter of 2018.

The good news here is that slower dividend growth does not imply that companies are by and large cutting their dividends. Still, S&P’s message and outlook would indicate that investors should be governing some of their great dividend growth expectations for the year ahead.

Check out our list of 10 companies that have raised their dividends for 50 consecutive years and the 15 Best dividend stocks for retirees to own.

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