By Lawrence C. Strauss
An important question for the market in 2025 is whether strong performance will broaden beyond the Magnificent Seven and other large-cap growth names that have dominated in recent years.
But when it comes to dividends, this year is shaping up as one with healthy mid-single-digit growth across much of the market.
“From a macro perspective, the main driver of dividends historically is earnings growth,” says Ben Snider, senior strategist on the U.S. portfolio strategy macro team at Goldman Sachs. “Earnings growth was good last year, and we think it’ll be even better in 2025.”
Goldman is forecasting an 11% bump in S&P 500 earnings per share this year, compared with an estimated 8% in 2024. That, in turn, will lead to a 7% boost in dividends this year versus 6% in 2024, Goldman expects.
Ohsung Kwon, a U.S. equity strategist at BofA Securities, has a more aggressive forecast. He expects a 12% rise in S&P 500 dividends this year, helped by accelerating earnings.
Overall earnings growth was soft in 2023, but that started to rebound last year. Kwon points out that there’s typically a lag of about three quarters between earnings growth and dividend increases.
“Given that we saw accelerating EPS growth for the S&P 500 over the past year, we expect dividends are likely to follow,” he says.
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, is expecting an average dividend increase in the neighborhood of 8% this year. He is looking for another record payout in 2025, this one at about $685 billion versus an expected $630 billion in 2024.
Undergirding all of that, he says, is “the current record earnings and expected forward records, as well as declining interest rates, strong employment, and underlying economic growth.”
Looking ahead, Kwon expects dividends to play a larger role in total returns than they have in the previous decade, when dividends “didn’t really drive that much of total return.”
Total returns combine price appreciation and dividends.
Not all of the Magnificent Seven stocks pay a dividend. And for the ones that do, including Microsoft and Apple, price appreciation, not dividends, has represented the largest part of their total returns.
Dividends, however, contributed 40% of the S&P 500’s total return from 1936 to 2012 but just 16% over the past decade, according to a BofA Securities research note late last year.
Dividends are especially important considering that the S&P 500 is coming off back-to-back 20%-plus gains — the first time that has happened since the late 1990s.
Also working in favor of dividends is a low payout ratio. That metric measures the percentage of earnings paid out in dividends. It’s currently 29%, far below its historical average of 50%, according to Kwon, who adds, “There’s still lots of room for companies to increase dividends.”
Another strong pillar for dividend investing, Kwon says, is the growing number of retired baby boomers looking for income. And with cash products yielding around 4%, “people want dividends,” he says. “People want cash today, [and] investors are demanding that dividend payout from companies.”
That includes the tech sector.
Although that part of the market isn’t known for high dividend yields, it does pay out a lot of dividends in terms of dollars. Case in point: Apple, which yields 0.4%, distributed $15.2 billion of dividends in the 12 months ended in late September of last year.
The S&P 500 information technology sector was recently yielding 0.6%, according to FactSet. However, information technology companies recently accounted for about 15% of the dividends paid out by S&P 500 companies, second only to financials at 17%, according to Goldman Sachs.
Among the large-cap technology companies that initiated dividends last year were Meta Platforms, which yields 0.3%, and Salesforce, 0.5%. Nvidia, the artificial-intelligence powerhouse, yields a minuscule 0.03%, but it did boost its payout slightly last year.
“Whether you’re looking top down or bottom up, the outlook is good” for dividends, says Snider, referring to the macro and micro environment.
Snider adds that he has received pushback from some investors who think that the bigger dividend increases are confined to large tech stocks. However, the median dividend increase was 6% last year for S&P 500 companies, he notes. Snider expects dividend increases to remain widespread, including in the technology and financial sectors.
“Financials have performed very well lately on the outlook for earnings growth this year, and they’re large dividend payers,” he says.
JPMorgan Chase, for example, yields 2.1%. Its stock has returned about 45% over the past year, including dividends. The banking giant last fall announced a quarterly dividend increase of nearly 9% to $1.25 a share from $1.15.
Asset manager BlackRock has a one-year return of about 30%; the stock yields around 2%. The company currently pays a quarterly dividend of $5.10 a share.
U.S. Bancorp, a large regional bank, yields 4.1%. Its one-year total return is about 17%. The company last year boosted its quarterly dividend to 50 cents a share.
Property and casualty insurer Chubb, which has a one-year return of about 20%, yields 1.4%. It pays a quarterly disbursement of 91 cents a share, having raised it from 86 cents in 2024.
Based on the Select Sector SPDRs, which offer a way for investors to invest in each of the S&P 500’s 11 sectors, financial dividends are expected to grow by an average of 20% this year versus 2024 levels, according to Bloomberg.
The dividend growth forecast for real estate dividends is 24%, and it’s 9% for healthcare — testament to the widespread dividend growth potential in various sectors.
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