Cash, Cash, and More Cash

For the first time in its history, the dividends paid by stocks in the Standard & Poor’s 500 — the 500 largest companies in America — reached $500 billion. Any way you measure it, $500 billion is a big number.

$500 billion is $98 billion more than we spent on Medicaid in fiscal 2018. The $500 billion paid out to shareholders in the form of dividends was more than twice the federal taxes paid by corporations, which were just $218 billion in fiscal 2018. Individual income taxes, by the way, were $1.7 trillion, almost three times the dividend tally. The dividends paid by the largest US companies could fund all of the cabinet level departments of the federal government, except defense, and still have $10 billion in “change” left over.*

There’s a lot of ways to think about these numbers. Some more liberal leaning investors might feel they demonstrate that corporations can easily pay more taxes. Some more conservative investors might point out that dividends don’t go just to fat cats, but enrich pension funds and mutual funds and therefore represent an important source of wealth creation and retirement savings for the middle class.

Whatever your political stripe, the gravy train looks like it will keep chugging along. Since 2013, total annual dividends have grown from $300 billion to the current $500 billion haul, for compound average annual growth of 8.9%.

David R. Evanson is a financial journalist in Philadelphia.

*Anonymous, (2019). Compound Annual Growth Rate. Investopedia. Retrieved December, 2019