The S&P 500 index tracks some of the largest U.S. stocks, many of which pay a regular dividends. Reviewing the history of the S&P 500 dividend yield can provide insight into the stock market's direction.
Dividend yields from blue-chip U.S. companies have been trending downwards over time, evidenced by the Standard & Poor's 500 Index (S&P 500) dividend yield of approximately 1.78% at the end of 2022 and similar yields throughout 2023.
This is well under the index's long-run average yield of 2.91%. In fact, dividend yields have remained relatively low (below 3%) since 1992. Slowed dividend growth over time is one more sign that small dividends remain the new normal.
A quick review of the history of the S&P 500 reveals just how abnormal sub-3% annual yields have been since the 1800s. Thanks to aggressive monetary policy and the rise of technology stocks, today's dividend investors have a bigger hill to climb than their predecessors.
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.
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Recent and Historical Yields
During the 90 years between 1871 and 1960, the S&P 500 annual dividend yield never fell below 3%. In fact, annual dividends reached above 5% during 46 separate years over the period.
The sharp change in S&P 500 dividend yield traces back to the 1990s. For example, the average dividend yield between 1970 and 1990 was 4.21%, according to NYU Stern's Aswath Damodoran. It declined to 1.95% between 1991 and 2007.
After a brief climb to about 3.15% during the peak of the Great Recession of 2008, the annual S&P 500 dividend yield averaged just 1.98% between 2009 and 2019. From 2020 onward, the dividend yield fell below 2% and has stayed below since then, ranging between 1.24% to 1.78%.
Monetary Policy Effects
Two significant changes contributed to the collapse of dividend yields. The first was Alan Greenspan becoming chair of the Federal Reserve in 1987, a position he held until 2006. Greenspan responded to market downturns in 1987, 1991, and 2000 with sharp drops in interest rates, which drove down the equity risk premium on stocks and flooded asset markets with cheap money.
Prices started climbing much faster than dividends. Despite evidence that these policies contributed to then-recent housing and financial bubbles, Greenspan’s successors effectively doubled down on his policies.
The Rise of Tech and Internet Companies
The second significant change was the rise of internet-based companies in the United States, especially following Netscape’s initial public offering (IPO) in 1995. Technology stocks proved to be quintessential growth players and typically produced little or no dividends. Average dividends declined as the size of the tech sector grew.
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S&P 500 Dividend Yield
The S&P 500 is the most widely cited single gauge of large-cap equities on U.S. stock exchanges. Standard & Poor's annual survey of assets estimated that more than $11.4 trillion was benchmarked to the index, making it one of the most influential figures in the world of finance. To be included, a company must be publicly traded in the United States and report a market capitalization of $14.5 billion or greater.
The dividend yield for the S&P 500 is calculated by finding the weighted average of each listed company's most recently reported full-year dividend and dividing it by the current share price. Yields are published and calculated daily by Standard & Poor's and other analysts.
S&P 500 Components and Composition Changes
The composition of the S&P 500 changes throughout time. Some listed companies de-list and go private, while others merge or split into multiple companies. Listed companies might also undergo profound changes without new stock tickers emerging.
For example, Bank of America Corp. (BAC) joined the S&P 500 in July 1976. In 1998, the bank experienced severe financial distress following a default on Russian bonds. It was subsequently acquired by NationsBank, which decided to keep the more recognizable name Bank of America Corp.
The S&P 500 tends to list more than 500 companies because a few have more than one share class listed. In November 2023, the S&P 500 had 503 on the index.
Such changes make equivalent comparisons difficult to make over time. Even though the S&P 500 dividend yields from 1976 and 1999 included the reported dividends from the same ticker, BAC, the ticker represents very different companies at different points in time.
Special Considerations
All annual dividend yields are quoted in nominal terms and do not take into consideration the annual rates of inflation present over the same period. Inflation reduces the real impact of all returns, including dividends, and generally makes it more difficult to grow real wealth. Additionally, dividend yields represent absolute values, so they cannot tell you if dividend-paying stocks in the S&P 500 are superior to alternative investments.
Does the S&P 500 Pay Dividends?
The S&P 500 is an index, so it does not pay dividends; however, there are mutual funds and exchange-traded funds (ETFs) that track the index, which you can invest in. If the companies in these funds pay dividends, you'll receive yours based on how many shares of the funds you hold.
How Often Are S&P 500 Dividends Paid?
Many companies listed on the index pay dividends every quarter—others might not. Funds that track the S&P 500, like the SPDR S&P 500 ETF, also pay dividends quarterly to its shareholders.
Do Dividends Get Taxed?
Yes, dividends get taxed, but the tax rate depends on the dividend type. Ordinary dividends are taxed at ordinary income tax rates, while qualified dividends are taxed at capital gains tax rates, which are less than income tax rates.
The Bottom Line
The dividend yield of the S&P 500 index shows how 503 select companies by market cap in the U.S. are paying out dividends. The S&P 500's dividend yield has slowly decreased overall, showing that companies are paying out lower dividends or no dividends at all.
