The Outlook For Dividends

A few companies are cutting them, but payouts are healthy overall.

- John Waggoner

If cash were grass, it would be up to the third-floor windows on Wall Street. And yet, despite all the money sitting on corporate balance sheets, such noteworthy companies as General Electric (symbol GE) and Anheuser-Busch InBev (BUD) have slashed their dividends in the past 12 months. And dividend growth overall is expected to slow in 2019.

Should income-hungry investors worry? No. The economy is still strong, and companies are flush. But it never hurts to examine your dividend holdings to make sure a dividend cut doesn’t catch you by surprise—and to see if there are better dividend opportunities around.

Aside from providing income, dividends are an important part of the stock market’s total return. Over the past 20 years, Standard & Poor’s 500stock index has gained 3.9% annually without dividends and 5.9% annually with dividends. Without dividends, a $10,000 investment in the index made in May 1999 would be worth $ 21,494 today. Add in dividends and your account would be worth $31,472, or 46.4% more.

IHS Markit estimates that U.S. firms will pay out $628.3 billion in dividends this year, up 8.1% from 2018. Thanks to rising oil prices, the energy industry is likely to see robust dividend growth in 2019, according to the research firm. Some tech companies will be among the most generous.

For example, Markit expects software giant MICROSOFT (MSFT, $128), yielding 1.4%, to boost its payout roughly 9% this year. (Prices, yields and other data are through May 17.)

Still, the expected overall dividend growth rate is below last year’s 10.6% pace, which was boosted by the 2017 Tax Cuts and Jobs Act. The legislation cut the average effective tax rate of S&P 500 firms to 13.2% in the fourth quarter of 2018 from 20.4% in the same quarter in 2017, giving companies lots of extra cash, some of which they shared with investors.

Off track.