Selected Dividend Trends in the S&P 500

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1 DIVIDEND QUARTERLY Andrew Birstingl, Research Analyst Media Questions/Requests S&P 500 September 28, 2015 Key Metrics: + Dividend Payments Continue to Rise: Aggregate dividend payments amounted to $105 billion for Q2 (July) and $399.3 billion over the trailing twelve months. Both numbers represented 10-year highs for the S&P 500. On a per-share basis, the TTM dividend payout was $40.52, which represented 11.3% growth year-over-year. + Consumer Discretionary and Financials Lead Growth in Dividends per share: The Consumer Discretionary sector led all groups in year-over-year (TTM) DPS growth, posting a 21.3% increase, while the Financials sector came in second, with a 17.3% increase. + DPS Growth Expected to Slow over the Next Twelve Months: Analysts are projecting that DPS growth for the S&P 500 will slow to 7.6% in the next twelve months. Eight out of ten sectors are expected to see slower DPS growth over the NTM compared to the TTM. + Number of Companies Paying Dividends and Increasing Dividends Declines: The number of companies paying dividends in the TTM ending in Q2 decreased to 420, which was 2 less than the previous quarter. The count of companies increasing their dividend payments declined to 316 at the end of Q2, which was 15 less than the previous quarter. + Dividend Payers Outperform in Down Months: Dividend paying stocks outperformed the S&P 500 Total Return index in approximately 66% of the months when the index experienced negative returns. Selected Dividend Trends in the S&P 500 Dividend Quarterly is one part of three reports (Buyback Quarterly and Cash & Investments Quarterly) analyzing cash and spending within the S&P 500. The other reports can be found at or within the FactSet Market News or Investment Research applications of your FactSet workstation. All data published in this report is available on FactSet. Please contact media_request@factset.com or FACTSET for more information. All data published in this report is available on FactSet. Please contact media_request@factset.com or FACTSET for more information. FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 1

2 Aggregate Dividend Payments Continue to Rise in Q2 Dividends Payments Reach 10-Year High Aggregate dividend payments amounted to $105 billion at the end of the second quarter (July), which was a 10-year high for the S&P 500. This was the ninth consecutive quarter that dividends increased, and the fifth consecutive quarter that dividend payments hit a new high. On a trailing twelve-month basis, the aggregate amount of dividends paid out was $399.3 billion. This was the sixth consecutive quarter that the index hit a 10-year high. At the end of Q2, dividend payments were nearly 45% greater than the 10-year TTM average of $274.5 billion. At the sector level, the aggregate dividend payments of all sectors exceeded their 10-year averages. The Financials and Information Technology sectors led all groups in terms of aggregate dividend payouts. The Financials sector ended the second quarter with dividend payouts totaling $67.7 billion, while the Information Technology sector saw dividend payouts of $59.6 billion. Four out of the top ten companies ranked by TTM dividends paid were in these two sectors (AAPL, MSFT, WFC, and JPM). Apple and Microsoft were the top two companies in terms of TTM dividends from the Information Technology sector. Apple distributed $3.1 billion in dividends in the second quarter and $11.4 billion over the trailing twelve months. The company also increased its dividend 11% to $0.52 per share at the end of April. Microsoft was third on the top ten list ranked by dividends paid, as the company distributed $2.5 billion in dividends in Q2 and $9.9 billion in the TTM. Wells Fargo and J.P. Morgan were the only two banks to make the list. Back in March, both companies were granted approval by the Federal Reserve under the Comprehensive Capital Annual Review ( CCAR ) to move ahead with their proposed investor payouts. Wells Fargo increased its quarterly dividend 7% to $0.37 per share and paid out $2.2 billion in dividends during the second quarter (TTM: $8.6 billion), while J.P. Morgan raised its dividend 10% to $0.44 per share and paid out $2 billion in dividends in Q2 (TTM: $7.4 billion). It is interesting to note that energy giants, Exxon Mobil and Chevron, remained two of the top ten dividend payers, despite slowing sales and cuts to capital expenditures. In fact, Exxon topped the list paying out over $11.8 billion in dividends in the TTM (CapEx cuts in the S&P 500 were discussed extensively in the latest Cash and Investment report). Exxon raised its quarterly dividend by 6% back in May, while Chevron maintained its dividend in Q2, despite a large miss on earnings. On its second quarter earnings call, Chevron Chief Financial Officer and Vice President, Patricia E. Yarrington, stated that We made a commitment to investors in March. We said we would cover the dividend from free cash flow in We stand by that commitment. Consumer Discretionary and Financials Lead DPS Growth On a per-share basis, the trailing twelve-month dividend payout was $40.52, which represented 11.3% growth year-over-year. At the sector level, all ten sectors saw positive year-over-year DPS growth on a trailing twelve-month basis, with five groups experiencing double-digit growth. The Consumer Discretionary sector led all groups in year-over-year growth posting a 21.3% increase, while the Financials sector came in second with a 17.3% gain. The top contributors to growth in the Consumer Discretionary sector included Disney, General Motors, and Dollar General. Disney, which has historically only paid an annual dividend, paid out a semi-annual dividend of $0.66 per share at the end of July. This was after the media and entertainment company had already boosted its annual dividend by 15%. General Motors was another contributor to YoY growth. The automotive company raised its quarterly dividend by 20% to $0.36 per share in Q2, after it re-initiated its dividend back in March Dollar General initiated a quarterly dividend of $0.22 per share, which also contributed to growth. In the Financials sector, Crown Castle Entertainment was the major contributor to growth in TTM dividends. The real estate investment trust maintained its quarterly dividend of $0.82 in Q2, after increasing it by 134% at the end of Some of the major banks also increased their dividends in the trailing twelve FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 2

3 months ending in Q2, such as Morgan Stanley, Goldman Sachs, Citigroup, BB&T, and Regions to name a few. DPS Growth Projected to Decelerate in 8 out of 10 Sectors Looking at dividends per share over the next twelve months, analysts are projecting that DPS growth for the S&P 500 will slow to 7.6%. Eight out of the ten GICS sectors are forecasted to see slower growth in DPS relative to the TTM period ending July The only two sectors with expected increases to growth rates are the Information Technology (+2% difference) and Consumer Staples (+0.8% difference) sectors. The Consumer Discretionary sector is estimated to face the largest decline, slowing to an 8.6% DPS rate YoY, compared to a TTM rate of 21.3%. The Financials sector will face the second largest decline, as it is projected to slow to 9.7% over the NTM from a TTM rate of 17.3%. That being said, in absolute terms, the Consumer Discretionary and Financials sectors still lead all other groups in terms of NTM dividends per share growth. Payout Ratio Reaches Highest Level since November 2009 The S&P 500 TTM aggregate payout ratio increased for the sixth consecutive quarter in Q2 and reached its highest level (37.6%) since December The Q2 level was 6.7 percentage points above the index s 10-year monthly median ratio. The dividend payout ratio has been rising due to trailing twelve month dividends growing at a faster pace than earnings. Looking forward, this trend may continue as analysts are projecting larger growth rates for dividends per share than they are projecting for earnings per share over the next twelve months. This is shown in the first chart on page 9 of this report. Number of Companies Increasing Dividends Declines The number of companies in the S&P 500 paying a dividend at the end of the second quarter was 418. This was down from the trailing twelve months ending in April 2015, when the number of dividend payers was 420. The count of companies that have increased their dividend has declined as well. In the TTM ending in Q2, 316 companies increased their dividend from the TTM ending the prior quarter. In Q1 2015, the count of firms increasing their dividends stood at 331. The Energy sector had six less companies that increased their TTM dividends from the previous quarter, which was the largest amount of any other sector. The Industrials sector had four less companies increase their dividends. As shown in the second chart of the backtest results on page 11 of this report, companies in the S&P 500 that have increased their TTM dividends per share from the three months prior consistently outperformed those companies that have maintained stable dividend payouts, as well as companies that have decreased their TTM dividends per share. The companies increasing their dividends have seen a market cap weighted cumulative return of 43.3% relative to the S&P 500 Total Return index (benchmark) since July Dividend Payers Outperform in Down Months Non-dividend paying stocks have outperformed dividend paying stocks on a market cap weighted cumulative return basis relative to the S&P 500 Total Return Index since August Non-dividend payers have also outperformed the benchmark index in the last four consecutive months from July As of the end of July, non-dividend payers saw an excess weighted cumulative return of 31.6% relative to the benchmark, while dividend payers saw a return of % relative to the benchmark. On an equal-weighted basis, non-dividend paying stocks have averaged a monthly return of 0.86% since July 1995, while dividend paying stocks averaged a monthly return of 0.82%. Additionally, the backtest showed that the group of dividend paying stocks outperformed the S&P 500 Total Return index in approximately 66% of the months when the index experienced negative returns. However, when the benchmark experienced positive returns, dividend payers outperformed the index in only 33% of the months. FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 3

4 Dividend Payout Practices The top chart counts the number of companies with trailing twelve-month dividend payments that are above, below, or in-line with payments from the previous quarter. Non-payers are stocks that did not pay dividends in the trailing twelve months or the previous quarter s trailing twelve months. Count of Companies by 3-Month Change in TTM Dividends per Share Increases and decreases in dividends per share are assessed on how the month-end trailing twelvemonth DPS figure compares to the previous quarter s value. Dividends per share figures include extra/special dividends. 3-Month Change in TTM Dividends per Share of Dividend-Paying Companies by Sector FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 4

5 Dividends Paid DIVIDEND QUARTERLY September 28, 2015 Aggregate cash dividends paid is sourced directly from the cash flow statement and includes both common and preferred dividends. The information presented below shows cash dividends paid over the trailing twelve months. Dividends Paid and Dividend Paying Companies (TTM Basis) 10 Years Company Top 10 Companies by Common and Preferred Dividends Paid (TTM Basis) Sector Divs Paid (TTM) Payout Ratio (TTM) 1 Yr Price Return 1 Yr Total Return Exxon Mobil Corporation Energy $11, % (24.1%) (21.6%) Apple Inc. Information Technology $11, % 13.0% 14.9% Microsoft Corporation Information Technology $9, % (6.7%) (4.2%) AT&T Inc. Telecom Services $9, % (9.3%) (4.2%) General Electric Company Industrials $9, % (3.9%) (0.4%) Wells Fargo & Company Financials $8, % (3.0%) (0.4%) Verizon Communications Inc Telecom Services $8, % (11.9%) (7.8%) Chevron Corporation Energy $8, % (37.2%) (34.5%) Johnson & Johnson Health Care $7, % (14.9%) (12.4%) JPMorgan Chase & Co. Financials $7, % (2.3%) 0.3% S&P $399, % (3.3%) (1.4%) FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 5

6 Dividend Yield: Sector-Level Dividend yield is calculated by dividing the trailing twelve-month dividends per share figure by yesterday s closing price. Ten-year average figures compute the average based on the dividend yield at the quarter-end. Dividend Yield by Sector Most Recent Quarter Top 10 Companies by Dividend Yield TTM Basis Company Sector Yield (TTM) DPS (TTM) Payout Ratio (TTM) 1 Yr Total Return Baxter International Inc. Health Care 5.9% $ % (7.7%) Helmerich & Payne, Inc. Energy 5.8% $ % (50.7%) Murphy Oil Corporation Energy 5.7% $ % (55.5%) Chevron Corporation Energy 5.6% $ % (34.5%) CenterPoint Energy, Inc. Utilities 5.5% $ % (21.8%) NiSource Inc. Utilities 5.3% $ % 17.6% Entergy Corporation Utilities 5.2% $ % (13.0%) Joy Global Inc. Industrials 5.1% $ % (71.7%) Verizon Communications Inc. Telecom Services 5.0% $ % (7.8%) National Oilwell Varco, Inc. Energy 5.0% $ % (51.4%) S&P % $ % (1.4%) *Screen results exclude companies that had a dividend payout ratio greater than 100% or less than 0% for the trailing twelve-month period. FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 6

7 Dividend Payout Ratio: In examining dividend payout ratios, there are a number of periods where earnings volatility caused payout ratios to change dramatically. This phenomenon can be seen in certain sectors ten-year average payout ratios. For this reason, the sector chart examines median payout ratios. Historical Dividend Payout Ratio (Earnings based) Trailing Twelve-Month Basis Dividend Payout Ratio (Earnings based) Trailing Twelve Months FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 7

8 Dividend Growth: One-Year Year-over-year % Growth in DPS and EPS by Sector Company Top 10 Companies by Growth in TTM Dividends per Share 1 Year Sector 1Yr DPS Growth 1Yr EPS Growth 1 Yr Total Return Yield (TTM) Iron Mountain, Inc. Financials 99.5% (73.6%) 2.9% 7.1% Valero Energy Corporation Energy 47.5% 51.6% 34.7% 2.4% Boeing Company Industrials 29.3% 10.7% 5.6% 2.6% Time Warner Cable Inc. Consumer Discretionary 29.3% (3.6%) 29.9% 2.0% Microsoft Corporation Information Technology 27.8% (43.7%) (2.0%) 2.8% Principal Financial Group, Inc. Financials 26.8% 8.4% (6.8%) 3.0% ONEOK, Inc. Energy 25.6% (4.1%) (43.5%) 6.8% Cummins Inc. Industrials 24.9% 12.3% (14.9%) 3.0% Williams Companies, Inc. Energy 24.4% 410.7% (20.8%) 4.7% Best Buy Co., Inc. Consumer Discretionary 23.5% (15.1%) 13.9% 2.3% S&P % (0.5%) (1.8%) 1.9% *This screen excludes companies with a starting or current dividend yield of less than 2%. The growth rate methodology is based on trailing twelve-month DPS compared to the value one year ago. FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 8

9 Next Twelve Month Estimates Dividends per share, Earnings per share, Payout Ratio Next Twelve Months Historical DPS Estimates Next Twelve Months, 2015, 2016 P/E Valuations PE of Dividend Payers vs PE of Non-Dividend Payers FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 9

10 Compound Annual Dividend Growth: 3, 5, and 10-Year Rates These screens exclude companies with a starting or current dividend yield of less than 2%. The growth rate methodology is that of compound annual growth rates based on annual dividends per share. Highest Growth in Annual Dividends per Share 3 Year Company Sector 3Yr Ann DPS Growth 3Yr Ann EPS Growth 3Yr Annualized Return Yield (TTM) CME Group Inc. Class A Financials 51.3% (14.9%) 23.5% 4.3% Ensco plc Energy 37.8% (33.0%) 11.2% Williams Companies, Inc. Energy 36.2% 66.7% 11.0% 4.7% Seagate Technology PLC Information Technology 33.6% (6.8%) 15.1% 4.8% Apartment Investment and Management Company Financials 29.4% 15.8% 3.1% Invesco Ltd. Financials 26.9% 13.1% 11.8% 3.0% ONEOK, Inc. Energy 25.3% (3.9%) (1.5%) 6.8% Gap, Inc. Consumer Discretionary 25.1% 22.5% (2.4%) 2.9% Omnicom Group Inc Consumer Discretionary 23.9% 8.4% 10.4% 3.0% Iron Mountain, Inc. Financials 23.0% 17.5% 9.2% 7.1% S&P % 7.3% 10.2% 1.9% Highest Growth in Annual Dividends per Share 5 Year Company Sector 5Yr Ann DPS Growth 5Yr Ann EPS Growth 5Yr Annualized Return Yield (TTM) Williams Companies, Inc. Energy 34.8% 42.9% 26.8% 4.7% KLA-Tencor Corporation Information Technology 27.2% 12.7% 16.0% 4.2% ONEOK, Inc. Energy 21.0% 0.8% 16.4% 6.8% Weyerhaeuser Company Financials 20.9% 14.1% 4.3% Principal Financial Group, Inc. Financials 20.7% 13.1% 16.6% 3.0% Dow Chemical Company Materials 20.6% 55.1% 12.1% 3.9% Public Storage Financials 20.5% 8.6% 19.5% 2.8% Garmin Ltd. Consumer Discretionary 20.3% (11.7%) 6.6% 5.5% Lockheed Martin Corporation Industrials 18.6% 7.6% 27.7% 2.9% Microsoft Corporation Information Technology 18.4% (6.8%) 15.3% 2.8% S&P % 7.6% 10.9% 1.9% Company Highest Growth in Annual Dividends per Share 10 Year Sector 10Yr Ann DPS Growth 10Yr Ann EPS Growth 10Yr Annualized Return Yield (TTM) ONEOK, Inc. Energy 17.1% 2.6% 13.4% 6.8% WestRock Co. Materials 15.2% 29.4% 23.6% 2.1% WEC Energy Group Inc Utilities 14.2% 14.9% 13.4% 2.9% Mattel, Inc. Consumer Discretionary 12.9% 0.7% 7.5% 6.7% ConocoPhillips Energy 12.2% (0.5%) 2.6% 6.2% Public Storage Financials 12.0% 14.2% 15.9% 2.8% Raytheon Company Industrials 11.7% 23.8% 14.0% 2.4% Freeport-McMoRan, Inc. Materials 11.4% (4.7%) 7.4% L Brands, Inc. Consumer Discretionary 11.0% 9.1% 23.5% 2.0% Reynolds American Inc. Consumer Staples 10.9% 6.9% 22.3% 3.1% S&P % 6.3% 5.3% 1.9% FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 10

11 20-Year Forward Performance: Dividend Practices The following charts show cumulative, forward one-month returns based on previous month characteristics, or factors, from a rolling universe of S&P 500 constituents. For all back tests, securities are regrouped dynamically and shown market-cap weighted to ensure that the effects of differences in security weighting between the model and the benchmark have a limited impact on return comparisons. For this back test, S&P 500 companies were broken into quintiles by dividend payout ratio (TTM basis). The groups were formed after removing non-dividend paying companies and companies with negative earnings from the universe. Quintile 1 includes the group of companies with the highest payout ratios and Quintile 5 includes the group of companies with the lowest payout ratios. Historical, Forward Returns- Rel to S&P 500 TR Index -Dividend-Paying Stocks Grouped by Payout Ratio For this back test, S&P 500 companies were broken into groups by change in their TTM DPS relative to 3 months ago. The groups were formed after removing non-dividend paying companies from the universe. Historical, Forward Returns - Rel to S&P 500 TR Index - Grouped by Change in TTM Dividend Payout FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 11

12 20-Year Forward Performance: Dividend Practices (Cont.) For this back test, S&P 500 companies were broken into two groups: those with positive TTM dividends per share those with no TTM dividends per share. Apple has been excluded because its significant weight and volatile performance in 2011 and 2012 has distorted the trends. Historical, Forward Total Return - Rel to S&P 500 TR Index - Dividend vs. Non-Dividend Stocks (ex-aapl) For this back test, S&P 500 companies were broken into quartiles by dividend yield. The quartiles were formed after removing non-dividend paying companies from the universe. Quartile 1 includes the group of companies with the highest yields and Quintile 4 includes the group of companies with the lowest yields. Historical, Forward Returns -Rel to S&P 500 TR Index Dividend-Paying Stocks Grouped by Yield Quartile FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 12

13 Important Notice DIVIDEND QUARTERLY September 28, 2015 The information contained in this report is provided as is and all representations, warranties, terms and conditions, oral or written, express or implied (by common law, statute or otherwise), in relation to the information are hereby excluded and disclaimed to the fullest extent permitted by law. In particular, FactSet and its affiliates disclaim implied warranties of merchantability and fitness for a particular purpose and make no warranty of accuracy, completeness or reliability of the information. This report is for information purposes and does not constitute a solicitation or an offer to buy or sell any securities mentioned within it. The information in this report is not investment advice. FactSet and its affiliates assume no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this report. About FactSet FactSet combines integrated financial information, analytical applications, and client service to enhance the workflow and productivity of the global investment community. The Company, headquartered in Norwalk, Connecticut, was formed in 1978 and now conducts operations from 35 locations worldwide, including Toronto, New York, Chicago, San Francisco, London, Amsterdam, Frankfurt, Paris, Milan, Hyderabad, Mumbai, Dubai, Manila, Tokyo, Hong Kong, and Sydney. To learn more about FactSet, visit FactSet.com and follow us on Twitter: Twitter.com/factset. About FactSet Fundamentals FactSet Fundamentals gives you access to current, comprehensive, and comparative information on securities worldwide. The comprehensive coverage available includes more than 69,000 companies from over 70 countries, with 20 years of historical data, and up to 2,000 data items on each company record. Comprised of annual and interim/quarterly data, detailed historical financial statement content, per share data, calculated ratios, pricing, and textual information, FactSet Fundamentals provides you with the information you need for a global investment perspective. About FactSet Market Aggregates FactSet Market Aggregates (FMA) combines information from FactSet Fundamentals, FactSet Estimates, and FactSet Prices to derive ratios and per share values on an aggregate level. The in-depth, aggregate data lets you analyze markets and portfolios with the same level of detail you use for security analysis. FMA gives you access to over 50 metrics for over 3,500 benchmarks including S&P, Russell, MSCI Global, FTSE, STOXX, TOPIX, and many local exchanges. About FactSet Alpha Testing Alpha Testing is FactSet s back testing tool. Alpha Testing lets you test ideas about which quantitative and qualitative factors drive returns. Use our robust and flexible interface to create custom models and communicate results. Alpha Testing is fully integrated into the FactSet workstation. Model scores can be used in real time portfolio contribution or for portfolio construction. FactSet.com Copyright 2015 FactSet Research Systems Inc. All rights reserved. 13