U.S. companies are responding to investors' frantic search for returns. Cisco Systems said last month that it will begin paying a dividend in fiscal year 2011, and Microsoft said it will increase its dividend by 23%, from $0.52 a year to $0.64.
Ten companies in the S&P 500 have initiated dividends so far this year, up from two in 2009 and five in 2008, says Howard Silverblatt, senior index analyst at S&P. "In general, investors are very hungry for income," Silverblatt says, noting that yields on the safest investments, like bank accounts or CDs, are extremely low. S&P 500 stocks currently return a little over 2%.
The dividend landscape has changed over the last few years, as financial firms, traditionally generous with their payouts, pulled back. Tech companies now pay 9.2% of the dividends provided by S&P 500 companies, and financials pay just 8.8%. In 2008, financial companies paid 20.5% of S&P 500 dividends, while tech companies paid 6.9%.
The tax on dividend income is scheduled to increase in 2011, but that's not likely to do that much damage to dividend stocks, Silverblatt says. "There are few alternatives for investors."