Dividends Eat Up Bigger Slice of Company Profits

Big companies are handing more of their profits to shareholders than at any time since the financial crisis, as record-low bond yields put a premium on dividends. Payouts at S&P 500 companies for the past 12 months amounted to almost 38% of net income over the period, according to FactSet, the most since February 2009. In the second quarter, 44 S&P 500 companies paid an annual dividend that exceeded their latest 12 months of net income, the FactSet data show. That is the most in a decade and a practice some analysts deem unsustainable. Companies have long spent large sums on dividends and share repurchases to boost their share prices. Investors now are clamoring more for dividends as a result of plunging interest rates, and companies are loath to disappoint them despite slow growth that is pressuring earnings at many firms. The dividend yield on the S&P 500, or annual payouts as a share of the current price, has been steadily above the 10-year U.S. Treasury yield for most of 2016, after only occasionally doing so for decades.

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