Reinvested dividends are an important part of the overall return on the stock market. Good news: Several major banks — Citigroup, PNC, Goldman Sachs, Bank of New York Mellon, JPMorgan, Wells Fargo and Morgan Stanley — announced dividend increases on Friday. These moves will likely help push the S&P 500’s dividend payout to another record in 2023. Bad news: After several years of rapidly rising dividends, growth may be slowing. Dividends are still growing, but at a slower pace Second quarter dividend payouts are still high, but below the first quarter’s record pace. In the second quarter, $143.2 billion was paid out to investors in the S&P 500, 1.9 percent higher than in the second quarter of last year, but lower than the quarter’s record $146.8 billion. Firstly. That puts dividend payouts for the first half of the year at $290 billion, at a record pace for the second straight year. S&P 500 dividends: 2023 on track for another record year Q2 2023: $143.2 billion Q1 2023: $146.8 billion Q4 2022: $146.1 billion Q3 2022: $140.3 billion Q2 2022: $140.6 billion Source: S&P Global Average 1.7 Dividend Yield in % and after a record year in both dividends and share buybacks in 2022. Who pays dividends? Dividends are on the rise. Last year, 399 companies in the S&P 500 (nearly 80%) paid dividends. Of which, 333 companies (83%) increased dividends. Only five reduced their payouts. That trend will continue through 2023. In the second quarter, 55 companies in the S&P 500 increased their dividends and 4 companies started paying dividends. Only eight companies reduced their dividends. This is strong, but less than the 132 companies that raised their dividends in the first quarter. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told me: “It is normal for many companies to announce a dividend increase in the first quarter. “That’s when many companies hold their annual shareholder meetings, and there’s no better time to raise dividends than right before the meeting.” The rest of 2023 could be tougher for dividends. While dividends are growing, the pace of growth is slower than in recent years. Dividend: Still growing but at a slower rate (Average growth in S&P 500 dividends year over year) Q2 2023: up 1.9% Q1 2023: up 6.7% 2022: 10.4% increase 2021: 5.8% increase What’s the problem? Cash-flow-dependent dividends have surged in recent years. “Companies have been increasing their dividends fairly steadily over the past few years,” Silverblatt said. “Dividends are a cash commitment. Some companies are concerned about the economy, consumer health and profits. The trend is still up but at a slower pace.” Why you should care about dividends Dividends are an important part of the long-term returns associated with owning stocks. A 1.7% dividend yield may not seem like much, but many investors reinvest the dividends they receive and compound their profits over the years. Since 1926, the S&P 500 has averaged 10.2% returns per year. Of which, 61% of profits are due to price appreciation, while 39% are due to dividends, assuming that dividends have been reinvested. S&P 500 Total Return, 1926-2023 Average. annual return: 10.3% Price as % of total return: 62% Dividend as % of total return: 38% Source: S&P Global Silverblatt indicates that a 1.7% reinvested dividend yield is a perfect example of the power of compound interest. “The further you go over the years, the bigger the returns,” he said.