Business

Big Tech Killed Dividends. Now, It’s Bringing Them Back To Return Trillions In Cash To Shareholders.

Income Strategy
By Rhea Lobo
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People are ditching the BS and loving the DS (dividend stocks). Dividends are a crucial part of the S&P 500, making up nearly one-third of its total return since 1926. But investors have fallen in love with fast-growing tech stocks (which generally don’t pay dividends) — leaving dividends as an afterthought… until now.

Tried and true: With interest rates still high, investors are again revisiting old-fashioned dividend compounders — companies known for steadily increasing payouts. According to MarketWatch, Goldman Sachs (NYSE:GS) had the highest annual dividend growth rate among the S&P 500 companies over the past five years.

  • If you bought five years ago, your quarterly dividends would have grown from $0.80 to $2.75 — a five-year compounded annual growth rate of 28%.
  • Additionally, they would have a 5.74% dividend yield on their initial investment, compared to the 2.8% today.

Are big dividends the future of big tech?

While Silicon Valley was largely responsible for the decline of dividends, its companies could lead a dividend comeback. Cash-flush tech giants like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) have raised their dividends by over 200% since 2012 — and other big tech companies are taking after their lead, kickstarting a new generation of dividend compounders. Meta (NASDAQ:META) recently announced a 50¢ quarterly dividend. And considering they’ve doubled their free cash flow over the past five years, increasing their dividend wouldn’t be an issue.

  • Analysts at Goldman Sachs speculate that Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) could start issuing their own dividends this year.
  • Others that have outperformed the S&P 500 with high dividend growth rates include Lowe’s (NYSE:LOW), Morgan Stanley (NYSE:MS), and Microchip Technology (NASDAQ:MCHP).

Beware the Dividend TRAP… that’s Temporary Rewards, Appealing Promises. High dividend yields are often dangled as a carrot to unknowing investors, who might ignore possible company problems — and miss out on returns. Over the last two decades, 14 of the 20 highest dividend-yielding stocks in the US underperformed the S&P 500 — and the world’s 100 highest dividend-paying stocks offer an 11% dividend but have declined more than 60% over the past five years.

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