What's better than a big fat S&P 500 dividend? One that's rising fast. And there's a surprising number of S&P 500 stocks upping their dividend game.
Ten companies in the S&P 500, including health care provider Cigna, consumer discretionary Advance Auto Parts and energy play Devon Energy, boosted their total dividend payments by 30% or more annually over the past five years. That's an astounding growth rate much higher than the average S&P 500 company's 8% annual dividend hike, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And make no mistake. Dividend hikes matter, especially when the S&P 500 is as choppy as it is now, says Jack Ablin, strategist at Cresset Capital Management. "Now that monetary policy is tightening, dividends are taking center stage again," he said.
The Role Of S&P 500 Dividends
It's easy to blow off dividends when stock prices are flying higher. But during a year when the S&P 500 is down more than 16%, dividends are a substantial and under appreciated form of gains.
While the S&P 500 is sinking, the SPDR S&P Dividend ETF, which targets dividend-paying stocks in the S&P 500, is essentially flat on the year. The ETF's 3.3% price decline this year so far is almost entirely erased by its 2.7% dividend yield.
Don't just go chasing high dividend stocks in the S&P 500, though, Ablin says. Yes, many investors are pouring into dividend stocks paying 4% annually, or more. But that's risky, many could crash when the Fed raises short-term interest rates, which defeats the purpose of finding safety in dividends.
"Reaching for dividend yield in an environment in which the Federal Reserve is engineering an economic slowdown, or perhaps a recession, could pressure companies paying high dividends to cut their payouts," Ablin says. "Stocks offering high dividend yields may not necessarily be offering big earnings payouts; instead, their yields could be high because their stock prices got crushed, and a dividend cut may be in the offing."
So what's a better idea? Find companies, not simply with high yields, but raising dividends the most.
Which S&P 500 Companies Are Raising Dividends The Most?
If you're looking for an aggressive dividend payment booster, you'll want to look at health insurer Cigna. The company upped its total dividend payout per share by more than 10,000%, or 154% a year, in the past five years. It paid a dividend per share of $4.24 in the past 12 months, up from the puny 4 cents a share it paid five years ago.
And yes, investors are noticing. Shares of the S&P 500 company are up more than 26% this year alone. Even with that massive stock jump, the stock still yields 1.57%, slightly higher than the S&P 500's 1.4% yield.
Advance Auto is another firm aggressively bumping up its dividend. Its payout per share jumped nearly 2,000%, or 84% a year on average, since 2017. The stock is down this year, by nearly 26%. But it at least yields 3.5% annually, paying investors to wait for a recovery.
Talk about a fast-growing and juicy dividend: Devon Energy already yields 8.9%. And that's due to paying $3.60 a share annually in dividends, up 1,400% or 72% a year, in the past five years. On top of that, the stock is up more than 50% just this year.
Don't overlook another big bonus of rising dividends: inflation protection. Ablin found S&P 500 dividend growth turned $1 of purchasing power in 1972 into more than $20 now. That outpaces the rate of inflation by more than four times, he says.
"Equity dividends have a long track record of growing income faster than inflation," he said. "For those investors interested in relatively stodgy, yet predicable, income, a quality dividend portfolio demands a closer look."
Fastest Growing Dividends In The S&P 500
Based on growth in last 12 month's total dividend from five years ago
| Company | Symbol | Yield | Annual growth rate of dividend payment per share | Sector |
|---|---|---|---|---|
| Cigna | 1.6% | 154% | Health Care | |
| Global Payments | 0.8 | 90 | Information Technology | |
| Advance Auto Parts | 3.5 | 84 | Consumer Discretionary | |
| Devon Energy | 8.9 | 72 | Energy | |
| NRG Energy | 3.4 | 63 | Utilities | |
| Coterra Energy | 8.9 | 56 | Energy | |
| Newmont | 5.2 | 54 | Materials | |
| Lennar | 1.9 | 51 | Consumer Discretionary | |
| EOG Resources | 2.5 | 32 | Energy | |
| Old Dominion Freight Line | 0.4 | 30 | Industrials |
