Dividends and Earnings Part Ways

Dividends on US stocks have grown during the trailing year, but earnings have fallen. While the dividends of the S&P 500 (SPY) are still well below earnings, the dividends of the Dow 30 (DIA) are well above earnings.

Dow 30 earnings are down about 67% versus a year ago — not good news for near-term dividend increases from that index with its current payout ratio of over 132%.

The 8% Dow dividend increase of last year is less likely in the coming year — or if it happens, it will be more financially draining, than a year ago.

S&P 500 earnings are down about 13% versus a year ago, leaving more capacity to raise dividends with a payout ratio of only about 40%; but perhaps uncomfortably high compared to only 32% a year ago.

The 14% S&P dividend increase of the past year is more likely to be moderated due to the decreased earnings and elevated payout ratio.