An Increasing Dividend, but Lower Dividend Yield?

The graph above compares the annual cash dividend per share for all of the S&P 500 companies to their dividend yield since 1960. While it is evident that companies increased their cash dividends per share over time, it is also just as clear that their dividend yield fell. Many investors use dividend yield to find the percentage of a stock’s purchase price that the company will return to shareholders in dividends. Dividend yield can be calculated by dividing a stock’s annual dividend by its share price. For example, if a stock pays an annual dividend of $2 and is trading at $40 a share, it would have a yield of 5%. In 1987, the dividend yield on the S&P 500 Index reached 3.17% and over the following 20 years, the dividend yield declined to 1.77% during 2006. In the late 90's and early-to-mid 00’s, increases in stock price significantly outpaced the increases in dividends, which sent the S&P 500 dividend yield down. According to The Wall Street Journal, one of the reasons dividends grew at a slower pace than stock prices was due in part to companies reinvesting profits back into company operations instead of distributing dividends to shareholders. Although dividend yields for the S&P 500 Index remain lower than the historical average, dividends continue to increase shareholder wealth by providing a source of current income and total return for the investor.


http://www.icmarc.org/xp/rc/marketview/chart/2007/20070914dividendyield.html