The S&P 500 is the most popular index to track the United States’ stock market.

Examining the S&P 500’s current and historical dividend yield can provide insight into the future of dividend payments in United States markets.

The dividend yield of the S&P 500 matters.  In fact, dividends are responsible for around 40% of total market returns over the long run.

Source:  The Power of Dividends, Hartford Funds, page 2

In decades with long bull markets (1990’s, 2010’s so far) dividends make up a smaller portion of total returns. When capital gains are weaker, dividends become more important.

Today, the S&P 500’s 1.8% dividend yield is near historical lows. Its historical average dividend yield is 4.3%.

Source: Multpl.com

Part of the reason for this is because the S&P 500’s valuation level is significantly elevated. The current price-to-earnings ratio for the S&P 500 is 24.7, versus a historical average of 15.7.

If the S&P 500’s price-to-earnings ratio were to revert to its historical average, the S&P 500’s dividend yield would be 2.8% at current payout ratio levels.

But a 2.8% yield is still only 65% of the historical average yield of 4.3%. The rest of the yield discrepancy is caused by the constituents of the S&P 500paying out a smaller portion of their earnings as dividends.

Of the 6 largest S&P 500 stocks by market capitalization, only 2 pay any dividend at all. The 6 largest S&P 500 stocks by market cap along with their yields (or lack thereof) are listed below:

  • Apple (AAPL) – 1.4% dividend yield
  • Amazon (AMZN) – No dividend
  • Google (GOOG) – No dividend
  • Microsoft (MSFT) – 1.5% dividend yield
  • Berkshire Hathaway (BRK-B) – No dividend
  • Facebook (FB) – No dividend
  • The S&P 500 is market cap weighted.  This means the largest companies by market cap make up a disproportionate weighting in the S&P 500.  The 6 stocks above make up around 18% of the S&P 500 and have an average yield of just 0.5% between them.

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