If you like S&P 500 dividends, now's your time. Companies' dividend yields are soaring this year.
All told, the yield on 11 stocks in the S&P 500, like Warren Buffett favorite energy stock Occidental Petroleum plus Diamondback Energy and consumer discretionary Bath & Body Works, more than doubled this year, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's a welcome chance for S&P 500 investors pounded by losses all year.
Investors are trying to find stocks where high dividends are sustainable.
"There are opportunities right now in low volatility and high dividend yielding stocks that shouldn't fall much further, regardless of the trajectory of the overall indexes," said George Ball, chairman of Sanders Morris Harris not referring to any specific stocks. "These stocks pay the owner well in the meantime."
But where are the biggest jumps in dividends?
Big Hikes In S&P 500 Dividends
Dividend yields are definitely on the rise. And there are multiple reasons.
Just owning the SPDR S&P 500 ETF Trust now generates 1.5% in annual dividends. That's up from just 1.2% at the start of the year. That might not sound like much. But when you apply a 0.3% difference to a decent sum of money, say $500,000, that's an extra $1,500 a year in investment income.
Why are dividend yields jumping so much? There are actually two factors. Most S&P 500 companies are aggressively boosting the sheer dollar volume of dividend payments. S&P 500 companies boosted their first quarter dividend payments by more than 11% to a record $137.6 billion from the same period of 2021, says Howard Silverblatt of S&P Dow Jones Indices. Investors scored $524.9 billion in dividends in the past 12 months, a record, and up more than 9% from the same period in 2021.
But it's not just dividend hikes. Keep in mind that a dividend yield is a company's per-share dividend divided by its share price. When stock prices fall, the denominator falls and the dividend yield for new buyers rises. And that's what's happening now that the S&P 500 is off nearly 19% this year.
Double Your Dividend?
The energy sector is home to many of the largest jumps in dividend yields. And that's just on top of massive gains in their share prices.
Take Occidental Petroleum, an energy company Buffett can't seem to buy enough of now. The Houston-based oil and gas company now yields 0.9%. That might sound tiny, but it's a 572% increase from its 0.14% yield at the start of the year.
And the giant jump in the dividend yield isn't due to the company's stock falling. Just the opposite. Shares are up more than 100% this year. What is different, though, is the company is aggressively bumping up its dividend. Back in February 2022, the company boosted its dividend to 52 cents a share. That's up from the previous annual rate of 4 cents a share. No wonder Buffett's Berkshire Hathaway is the No. 1 holder of the stock at 16% of shares outstanding.
But some dividends in the energy sector are jumping so much they're at much more impressive levels. Diamondback Energy now yields 10.2%. That's up 451.7% from its 1.9% dividend yield coming into the year. Again, it's not due to falling shares. Shares of Diamondback are up more than 14% this year. The company in June announced plans to return 75% of its free cash flow to investors. The company boosted its based dividend to $3 a share annually, up 7.1% from the previous base dividend of $2.80 a share.
Falling Shares, Rising S&P 500 Dividend
Energy firms are the exception. But in most cases, massive jumps in dividend yields are the result of falling share prices.
That's the case at mall-based soap seller Bath & Body Works. The company's shares are now yielding 2.7%, up 215% from their paltry yield of 0.9% coming into the year. But that higher yield comes with pain. Shares lost more than half their value this year.
A falling share price explains the skyrocketing dividend yield of seven of the 11 S&P 500 stocks with the biggest jumps in their dividend yields. That's great if you're buying these stocks now, and they stop falling. But just know plenty of investors got burned chasing huge dividends that got wiped out by plunging shares.
Dividend Yields Double
S&P 500 stocks where yields are up 100% or more from levels on January 1, 2022
| Company | Symbol | Dividend yield | Sector | Yield % ch. this year |
|---|---|---|---|---|
| Occidental Petroleum | 0.9% | Energy | 572.2% | |
| Diamondback Energy | 10.2 | Energy | 451.7 | |
| Bath & Body Works | 2.7 | Consumer Discretionary | 215.0 | |
| Lennar | 2.1 | Consumer Discretionary | 146.4 | |
| NXP Semiconductors | 2.2 | Information Technology | 122.9 | |
| Old Dominion Freight Line | 0.5 | Industrials | 117.1 | |
| W.R. Berkley | 1.4 | Financials | 116.2 | |
| Tractor Supply | 1.9 | Consumer Discretionary | 112.4 | |
| Wells Fargo | 2.6 | Financials | 111.0 | |
| Halliburton | 1.6 | Energy | 103.0 | |
| Advance Auto Parts | 3.4 | Consumer Discretionary | 101.4 |
