Here comes the dividends

And here comes the return of the digital dividend check. 

S&P 500 dividends will grow by 4.5% per year on average for the next decade, Goldman Sachs chief U.S. equity strategist David Kostin forecasts in a new note Thursday. Dividends are seen growing 6% this year and again in 2022, Kostin predicts, as companies look to put rebuilt cash positions to work for shareholders beyond the pandemic. 

Annual dividend growth has averaged 3.5% for S&P 500 companies since 2005, Goldman’s work shows. 

“At the company level, dividend actions year-to-date support our view that the post-pandemic year will see substantial dividend growth,” Kostin says. 

Some of the biggest dividend increases are expected to be seen in the health care, information technology, consumer discretionary and financial sectors. These four sectors made up 52% of dividends in 2020, and Kostin envisions them contributing 71% of S&P 500 dividend growth through 2022.

Apple has already gotten things kicked off on the right foot on the dividend front. The tech giant raised its dividend by 7% in April.

So far in 2021, there have only been two dividend decreases — Healthpeak Properties (20% dividend cut) and Xilinx (dividend suspended as it closes its sale to AMD). In 2020, 69 companies from the S&P 500 cut their dividends as they sought to protect cash with the pandemic raging. 

With the pandemic having rounded the corner, Kostin believes the stage is set for dividend hikes. 

“Many companies that decreased their dividends in 2020 have yet to announce increases in 2021, suggesting that the post-pandemic rebound still has room to run. Of the 57 companies that decreased or suspended their dividends in 2020, 22 have resumed or increased their dividends. Consensus expects that 19 others will increase dividends by year-end 2021,” Kostin notes.

One way investors are positioning for the return of dividends is through dividend-focused ETFs.

The SPDR Portfolio S&P 500 High Dividend ETF and the Schwab U.S. Dividend Equity ETF are up 21.7% and 16.2% this year, easily outperforming the S&P 500.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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