Big Tech Killed Dividends. Now, It’s Bringing Them Back To Return Trillions In Cash To Shareholders. – The Average Joe
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    Big Tech Killed Dividends. Now, It’s Bringing Them Back To Return Trillions In Cash To Shareholders.

    Rhea Lobo

    February 27, 2024

    People are ditching the BS and loving the DS (dividend stocks). Dividends are a crucial part of the S&P 500, making up nearly one-third of its total return since 1926. But investors have fallen in love with fast-growing tech stocks (which generally don’t pay dividends) — leaving dividends as an afterthought… until now.

    Tried and true: With interest rates still high, investors are again revisiting old-fashioned dividend compounders — companies known for steadily increasing payouts. According to MarketWatch, Goldman Sachs (NYSE:GS) had the highest annual dividend growth rate among the S&P 500 companies over the past five years.

    • If you bought $GS five years ago, your quarterly dividends would have grown from $0.80 to $2.75 — a five-year compounded annual growth rate of 28%.
    • Additionally, they would have a 5.74% dividend yield on their initial investment, compared to the 2.8% today.

    Are big dividends the future of big tech?

    While Silicon Valley was largely responsible for the decline of dividends, its companies could lead a dividend comeback. Cash-flush tech giants like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) have raised their dividends by over 200% since 2012 — and other big tech companies are taking after their lead, kickstarting a new generation of dividend compounders. Meta (NASDAQ:META) recently announced a 50¢ quarterly dividend. And considering they’ve doubled their free cash flow over the past five years, increasing their dividend wouldn’t be an issue.

    • Analysts at Goldman Sachs speculate that Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) could start issuing their own dividends this year.
    • Others that have outperformed the S&P 500 with high dividend growth rates include Lowe’s (NYSE:LOW), Morgan Stanley (NYSE:MS), and Microchip Technology (NASDAQ:MCHP).

    Beware the Dividend TRAP… that’s Temporary Rewards, Appealing Promises. High dividend yields are often dangled as a carrot to unknowing investors, who might ignore possible company problems — and miss out on returns. Over the last two decades, 14 of the 20 highest dividend-yielding stocks in the US underperformed the S&P 500 — and the world’s 100 highest dividend-paying stocks offer an 11% dividend but have declined more than 60% over the past five years.

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