The Paradox of Dividends

There is kind of a funny paradox going in the world of stock dividends these days. The number of stocks in the Standard & Poor’s 500 that offer dividends is at its highest level in more than a decade – 402 out of the 500 are now paying dividends – and dividend payouts are expected to reach a new record of $275 billion in 2012.The old record was set back in 2008, when dividends totaled $248 billion.

At the same time, though, companies are not being incredibly generous with their money. Dividends are reaching record levels in large part because profits are reaching record levels. The overall payout ratio for the S&P 500 – the percentage of profits that get back to shareholders as dividends – is now at a record low of 29 percent, according to research conducted by the Web site the Motley Fool. 

All told, the aggregate dividend yield for the S&P 500 is sitting at 2.1 percent, which is the same as the overall ten-year average. So even though more companies are issuing dividends, and profits are at lofty levels, the overall percentage of money getting back to shareholders is largely unchanged.