Table of Contents
- Understanding the S&P 500 Dividend Yield
- Recent and Historical Yields
- Monetary Policy Effects
- The Rise of Tech and Internet Companies
- S&P 500 Dividend Yield Explained
- S&P 500 Components and Composition Changes
- Special Considerations
- Does the S&P 500 Pay Dividends?
- How Often Are S&P 500 Dividends Paid?
- Do Dividends Get Taxed?
- The Bottom Line
Understanding the S&P 500 Dividend Yield
Let me explain the S&P 500 index to you—it tracks some of the largest U.S. stocks, and many of these pay regular dividends. If you're looking into the stock market's direction, reviewing the history of the S&P 500 dividend yield gives you solid insight.
Dividend yields from blue-chip U.S. companies have been trending downwards over time. Take the Standard & Poor's 500 Index (S&P 500) dividend yield—it was about 1.78% at the end of 2022 and stayed similar through 2023. That's well below the index's long-run average of 2.91%. Yields have been relatively low, under 3%, since 1992. This slowed dividend growth is just another sign that small dividends are the new normal.
When I look back at the history of the S&P 500, it shows how unusual these sub-3% annual yields are since the 1800s. With aggressive monetary policy and the rise of technology stocks, dividend investors today face a tougher challenge than those in the past.
Key Takeaways
- The S&P 500 index tracks some of the largest stocks in the United States, many of which pay out a regular dividend.
- The index's dividend yield is the total dividends earned in a year divided by the index's price.
- Historical dividend yields for the S&P 500 have typically ranged from between 3% to 5%.
- Since 1997, dividend yields have tended to remain below the long-run average.
Recent and Historical Yields
During the 90 years from 1871 to 1960, the S&P 500 annual dividend yield never dropped below 3%. In fact, it went above 5% in 46 separate years during that period.
The big shift in S&P 500 dividend yield started in the 1990s. For instance, the average yield between 1970 and 1990 was 4.21%, based on data from NYU Stern's Aswath Damodaran. It then fell to 1.95% from 1991 to 2007.
After a short rise to about 3.15% at the peak of the 2008 Great Recession, the annual yield averaged just 1.98% from 2009 to 2019. From 2020 on, it dipped below 2% and has stayed there, ranging from 1.24% to 1.78%.
Monetary Policy Effects
Two major changes led to this drop in dividend yields. First, Alan Greenspan became chair of the Federal Reserve in 1987 and held the position until 2006. He responded to market downturns in 1987, 1991, and 2000 by slashing interest rates, which lowered the equity risk premium on stocks and pumped cheap money into asset markets.
As a result, prices climbed much faster than dividends. Even though these policies helped create housing and financial bubbles, Greenspan's successors basically continued and intensified them.
The Rise of Tech and Internet Companies
The second big change was the emergence of internet-based companies in the U.S., especially after Netscape's IPO in 1995. Tech stocks are classic growth plays and usually offer little or no dividends. As the tech sector grew, average dividends across the index declined.
S&P 500 Dividend Yield Explained
The S&P 500 is the go-to gauge for large-cap U.S. equities. Standard & Poor's estimates over $11.4 trillion is benchmarked to it, making it hugely influential in finance. To get in, a company needs to be publicly traded in the U.S. with a market cap of $14.5 billion or more.
We calculate the S&P 500 dividend yield by taking the weighted average of each company's most recent full-year dividend and dividing by the current share price. These yields are published daily by Standard & Poor's and other analysts.
S&P 500 Components and Composition Changes
The S&P 500's makeup evolves over time. Companies delist, go private, merge, or split. Some change dramatically without new tickers.
For example, Bank of America Corp. (BAC) joined in July 1976. In 1998, it hit severe distress after a Russian bond default and was acquired by NationsBank, which kept the Bank of America name. The S&P 500 often has more than 500 companies due to multiple share classes—in November 2023, it had 503.
These changes make historical comparisons tricky. Even if yields from 1976 and 1999 both include BAC dividends, the ticker represented different companies at those times.
Special Considerations
All these annual yields are in nominal terms and don't account for inflation, which erodes real returns and makes growing real wealth harder. Also, yields are absolute, so they don't show if S&P 500 dividend stocks beat other investments.
Does the S&P 500 Pay Dividends?
The S&P 500 itself is an index, so it doesn't pay dividends. But you can invest in mutual funds or ETFs that track it. If the companies in those funds pay dividends, you'll get yours based on your shares.
How Often Are S&P 500 Dividends Paid?
Many S&P 500 companies pay quarterly dividends, though some don't. Tracking funds like the SPDR S&P 500 ETF pay quarterly to shareholders.
Do Dividends Get Taxed?
Yes, dividends are taxed. Ordinary ones at income tax rates, qualified at lower capital gains rates.
The Bottom Line
The S&P 500 dividend yield reflects how 503 large-cap U.S. companies are distributing dividends. Overall, it's decreased slowly, meaning companies pay lower dividends or none at all.
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