If You’re Looking For Capital Growth, Avoid Dividends

Shareholder distributions, defined as total dividends plus gross share buybacks, amounted to $259.8 billion for S&P 500 companies at the end of the third quarter — the highest quarterly total of shareholder distributions in at least ten years. The second highest total was recorded back in April 2014 when distributions hit $252.2 billion.

For income investors, this is good news. Corporations are now returning a record amount of cash to investors — what’s not to like?

Well, as it turns out there’s a lot not to like, especially for those investors seeking capital growth, as a recent research report from Factset INSIGHT points out.

Dividends are rising

S&P 500 company dividend payments amounted to $103.3 billion in Q3, which was the third largest quarterly total in at least ten years. Dividends make up around 40% of cash distributions to investors. Year-on-year dividend payments to investors are up 10.9%. The total dividend payout for the trailing 12 months ending in Q3 was $410.8 billion, which marked the largest trailing-twelve-month payout in at least ten years.

Quarterly distributions

At the sector level, Financials and Information Technology sectors were the most generous to investors. The Financials sector ended Q3 with dividend payments totaling $17.5 billion on a quarterly basis and $70 billion on a trailing 12-month basis. The Information Technology sector paid out $14.6 billion in quarterly dividends and $60.9 billion in TTM dividends. Tech giants such as Apple and Microsoft, along with banking giant Wells Fargo were responsible for the largest cash payouts to investors.

However, while the dollar value of dividends paid per share hit one of its highest levels in ten years during the third quarter, the year-over-year growth in dividends paid per share was the lowest rate seen since 2011. The S&P 500 TTM dividend per share was $42.46 for the third quarter representing 10.9% growth from the year-ago period, below the average YoY growth rate of 12.1% for the past eight quarters.