U.S. stock dividends bounce back in third quarter

U.S. stock dividends bounce back in third quarter

S&P 500 dividend payments rose in the third quarter, but bond yields have been attracting investors

The U.S. stock market saw a rise in common dividends in the three months through September, although companies appeared “cautious,” according to S&P Dow Jones Indices.

“Dividend payments picked up in the third quarter,” bouncing back from their second-quarter decline, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, in a note emailed Wednesday. The rise was bolstered by T-Mobile US Inc.’s TMUS, +1.19% $3.1 billion dividend initiation and Microsoft Corp.’s MSFT, +1.78% $2.1 billion increase in dividends, according to Silverblatt,

“Absent these two increases,” he said, the quarterly rise points to “a cautious corporate approach to longer-term dividend commitment” that to him seems justified in the short term “given the acceptance of higher-for-longer interest rates,” their impact on consumer spending and uncertainty surrounding the economy.

Bond yields have risen steadily since May this year and jumped further in the past 10 days as investors have been anxious about the Federal Reserve potentially holding its policy interest rate higher for longer as the U.S. economy chugs along with inflation still running above its 2% target.

Silverblatt pegged the S&P 500’s dividend yield at 1.63% on the last trading day of September. Real-estate and utilities stocks offered the highest dividend yields among the index’s 11 sectors at the end of the third quarter, at 3.89% and 3.72%, respectively, data he provided in the email shows.

But those yields are below what investors have been able to get in the U.S. Treasury bond market.

“Why own any dividend equity for the dividend” when a T-bill yields more than 5%? said Matthew Tuttle, chief executive officer and chief investment officer of Tuttle Capital Management, by phone Wednesday. “I get equity risk and a subpar yield.”

The U.S. stock market slumped in the third quarter.

The S&P 500’s utilities XX:SP500.55 and real-estate XX:SP500.60 stocks are the index’s worst-performing sectors this year. The utilities sector has plummeted 19.6% in 2023 through Wednesday while real estate dropped 10.3% over the same period, FactSet data show.

Meanwhile, the yield on the two-year Treasury note BX:TMUBMUSD02Y fell 10 basis points on Wednesday to 5.048%, according to Dow Jones Market Data. Six-month T-bills BX:TMUBMUSD06M were yielding 5.57%, FactSet data show, at last check.

The U.S. stock market finished higher Wednesday, as investors weighed an estimate from ADP that private-sector job growth slowed in September more than Wall Street expected. The S&P 500 SPX closed with a 0.8% gain, while the Dow Jones Industrial Average DJIA rose 0.4% and the Nasdaq Composite COMP climbed 1.4%.

“Absent an economic event, I would expect a record dividend payment for the S&P 500 Q4 period as large caps appear to be weathering the uncertainties better than others,” Silverblatt said. “For 2024, I expect companies to remain cautious over both consumer and government spending, and consider any impact of the political environment.”


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