As Stocks Rally to Record Highs (Again), Dividend Yields Are Not Keeping Pace

Stocks might be soaring — to record highs, actually — but there’s one thing that’s not keeping pace: dividends. Payouts by Corporate America are once again trending towards record lows, with large US firms embracing share buybacks to return capital to shareholders.

• In Q2, the dividend yield of the S&P 500 was 1.25%, a hair above the all-time low of 1.11% seen in Aug. 2000 — the index’s long-term average is 1.81%.
• Outsized members of the index — namely, megacap tech stocks — have only recently begun paying dividends, which are generally much lower than those across the broader index.

What does that mean? Share buybacks have become a more popular way of paying it forward. The result of buybacks is typically higher stock prices, which reward long-term investors (and well-vested executives and employees). However, if yields continue to fall, investors might need to seek income from their equities elsewhere — from value investments or sectors that pay higher dividends, for example — unless they’re willing to sell their high-flying investments.