Off the Charts: Information Technology Dividends Surge Past Consumer Staples Sector

S.P. Dow Jones indexes reported that in 2012 the technology sector accounted for 14.7 percent of all dividends paid to investors in the 500 companies, up from 10.3 percent in 2011 and from a little over 5 percent back in 2004. It replaced the consumer staples sector, which had been the largest payer of dividends for the previous three years.

The change was largely because of the decision by Apple, now the most valuable company in the world, to begin paying dividends last year. The company had been public for more than three decades before it announced plans in March to begin making payouts. Four other technology companies in the index — all but one of which had been public for more than two decades without paying a dividend — later joined in making payments to shareholders.

With those changes, 60 percent — 42 — of the 70 technology stocks in the index are now dividend payers. The dividends from many technology companies are relatively small, however, and of the other sectors, only health care comes close to having as large a share of companies that do not pay dividends.

But a few years ago, the idea that most technology companies would choose to pay dividends rather than hold profits to be reinvested, would have seemed highly unlikely. In 1999, when the technology stock bubble was nearing an end, companies that paid dividends were generally viewed as boring and growth companies as exciting. Over all, the S. P. 500 index rose 20 percent that year, but the stocks that paid dividends were up only 4 percent. A portfolio composed only of big companies that did not pay dividends would have risen 90 percent.

The stocks in the S. P. 500 are generally the largest and most widely held stocks in the country. S. P. estimates that this year they will pay nearly three-quarters of all dividends paid by American companies. The accompanying chart shows information on the three sectors that have been the largest payers in at least one of the last nine years — and provides a cautionary warning about the risks of buying stocks solely because they pay high dividends.

The financial sector was the largest dividend payer by far in the years leading up to the financial crisis, and those dividends were more than supported by reported profits. But those profits vanished at many of the companies, and so did the dividends. The sector went from providing nearly 30 percent of all S. P. 500 dividends in 2006 and 2007 to providing about 9 percent of them in 2009 and 2010. That figure is now back to more than 12 percent, and will continue to rise if the Federal Reserve allows big banks to increase their dividends, as many want to do.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/01/12/business/information-technology-dividends-surge-past-consumer-staples-sector.html?partner=rss&emc=rss