The U.S. stock market saw a rise in common dividends in the three months through September, although companies appeared “cautious,” according to S&P Dow Jones Indices.
“Dividend payments picked up in the third quarter,” bouncing back from their second-quarter decline, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, in a note emailed Wednesday. The rise was bolstered by T-Mobile US Inc.’s
TMUS,
$3.1 billion dividend initiation and Microsoft Corp.’s
MSFT,
$2.1 billion increase in dividends, according to Silverblatt,
“Absent these two increases,” he said, the quarterly rise points to “a cautious corporate approach to longer-term dividend commitment” that to him seems justified in the short term “given the acceptance of higher-for-longer interest rates,” their impact on consumer spending and uncertainty surrounding the economy.
Bond yields have risen steadily since May this year and jumped further in the past 10 days as investors have been anxious about the Federal Reserve potentially holding its policy interest rate higher for longer as the U.S. economy chugs along with inflation still running above its 2% target.
Silverblatt pegged the S&P 500’s dividend yield at 1.63% on the last trading day of September. Real-estate and utilities stocks offered the highest dividend yields among the index’s 11 sectors at the end of the third quarter, at 3.89% and 3.72%, respectively, data he provided in the email shows.
But those yields are below what investors have been able to get in the U.S. Treasury bond market.
“Why own any dividend equity for the dividend” when a T-bill yields more than 5%? said Matthew Tuttle, chief executive officer and chief investment officer of Tuttle Capital Management, by phone Wednesday. “I get equity risk and a subpar yield.”
Read: Utilities stocks ‘decimated’ by rising rates fall into uncommon trading territory, Bespoke chart shows
The U.S. stock market slumped in the third quarter.
The S&P 500’s utilities
XX:SP500.55
and real-estate
XX:SP500.60
stocks are the index’s worst-performing sectors this year. Based on Wednesday afternoon trading, the utilities sector has plummeted almost 20% in 2023 while real estate was down nearly 11% over the same period, according to FactSet data, last last check.
Meanwhile, the yield on the two-year Treasury note
BX:TMUBMUSD02Y
was trading around 5.08% on Wednesday afternoon. Six-month T-bills
BX:TMUBMUSD06M
were yielding 5.57%, according to FactSet data, at last check.
Read: Here is the area bond-ETF investors favored in September as yields jumped
The U.S. stock market was trading mostly higher on Wednesday, as investors weighed an estimate from ADP that private-sector job growth slowed in September more than Wall Street expected. The S&P 500
SPX
was up 0.3% in afternoon trading, while the Dow Jones Industrial Average
DJIA
dipped 0.1% and the Nasdaq Composite
COMP
advanced 0.9%.
“Absent an economic event, I would expect a record dividend payment for the S&P 500 Q4 period as large caps appear to be weathering the uncertainties better than others,” Silverblatt said. “For 2024, I expect companies to remain cautious over both consumer and government spending, and consider any impact of the political environment.”
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