Dividends are often viewed as the “exclusive right” of the utilities and real estate industry, but in the second quarter of this year, tech giants subverted this perception with impressive performance.
US and global companies raised their dividends in the second quarter. Big tech companies are now major dividend payers.
Dividends are no longer limited to utilities, real estate companies, and other more “boring” value-oriented industries.
According to a report released by Janus Henderson Investors on Monday, Alphabet (GOOGL.O) and Meta Platforms (META.O) first began paying dividends earlier this year, which greatly contributed to the increase in overall dividends for US companies.
According to the Janus Henderson Global Dividend Index survey, US companies' dividend payments increased 8.6% to $161.5 billion in the second quarter. Alphabet and Meta account for nearly 4 billion dollars.
Globally, dividend payments increased 8.2% in the second quarter to a record of $606.1 billion. HSBC Holdings (00005.HK), Nestle and China Mobile (00941.HK) are the largest dividend payers.
Microsoft (MSFT.O) is the largest dividend payer in the US and the 7th largest in the world. The second-quarter dividend payment was close to $5.6 billion. Apple (AAPL.O) is the only other US company among the 20 largest global dividend payers, ranking 19th with quarterly payments of over $3.8 billion.
Asset management firm Janus Henderson said that global companies are currently expected to pay a record dividend of 1.74 trillion US dollars this year, up 6.4% from 2023 levels. After the first quarter report, the company had anticipated a dividend increase of just 5%.
Jane Shoemake, client portfolio manager for Janus Henderson's global dividend earnings team, said, “The launch of dividends from major US media technology companies Meta and Alphabet and China's Alibaba is a positive sign.”
Alibaba (BABA.N) paid dividends for the first time in November last year.
Shoemake added: “The payment of dividends will also increase their appeal to investors who see dividends as an important part of their investment strategy, and may encourage more companies to follow suit.”
With Meta and Alphabet now starting to pay dividends, this means that five of the so-called “Big Seven” are already paying dividends, with the exception of Amazon (AMZN.O) and Tesla (TSLA.O). However, dividend payments by big tech companies are still relatively small. Nvidia (NVDA.O), for example, has a dividend yield of just 0.04%. Microsoft, Apple, Meta, and Alphabet all had dividend yields of less than 1%.
Despite this, investors have recently flocked to dividend-paying stocks, partly because the Federal Reserve is expected to start cutting interest rates at the September 18 meeting. Since the beginning of July, long-term treasury yields have fallen from close to 4.5% to around 3.7%, making income-generating stocks more attractive.
As a result, the SPDR S&P Dividend ETF has risen by nearly 6.5% over the past three months, while the S&P 500 is only up 1%.
There also appears to be room for blue-chip companies to boost their dividends. Bank of America Global Research strategists pointed out in a report last Friday that the corporate profit ratio, or payout rate, paid out as dividends to shareholders “is close to the lowest level in history, which is different from the level of tension in 2008.”
“This suggests that safer dividends may account for a larger share of total returns,” Bank of America's strategist added.
As investors are suddenly concerned about the economic slowdown, especially after the weak August employment report released last Friday, the market may continue to experience a wave of risk aversion.
A strategist at Ned Davis Research said in last month's report: “The Federal Reserve usually cuts interest rates to cope with a slowdown in economic growth. If the economy falls into recession, the defensive nature of dividend payers should benefit.”
In the face of market fluctuations over the past two months, it is even more important to have stocks that provide stable dividends.