Apple Buyback Lets Exxon Reclaim Crown Of Biggest Dividend Payer

In late September, 

Campbell Soup
increased its divided 7.6% from 29 cents a share to 32 cents. Earlier in the month 

Microsoft
 raised its quarterly payout 22% to 28 cents per share from 23 cents. And just last week 

Kraft Foods Group
 announced a 5% increase from 50 cents to 52 cents.

Net dividend payout was up $11.9 billion in the third quarter of 2013 according to a report from Howard Silverblatt, S&P Dow Jones Indices’ senior index analyst. The quarter saw a record 475 companies increase dividend payouts and 44 decrease. During the same period last year there were 439 increases and 53 decreases for a net payout hike of $8.8 billion.

“Overall companies are doing much better than they were before,” says Silverblatt. “They’ve passed the recovery point from the recession and they are not spending as much.” Earning set all-time highs in the first and second quarters of this year, and estimates put the third quarter slightly ahead as well.

Traditionally, large established companies have paid dividends in order to return excess cash flow above their capital needs to investors. With 83.9% of S&P 500 companies and the entire Dow Jones industrial average paying , old favorites clearly still pay (only 47.3% of non-S&P stocks do), but they also keep plenty of financial firepower in reserve.

“While they are paying out record amounts they are not being generous,” Silverblatt explains. Looking back to 1936, companies have historically paid out 52% of what they make in earnings, he says. Currently that figure is closer to 36%.

While the payout ratio may be below historical norms, there have been other shifts as well. Investors gravitating toward dividend payers for income generation in a low  interest rate environment have also seen a number of technology companies join the group and become some of the market’s biggest payers. Tech, with big payout on a dollar basis from firms like

IBM
,

Apple
and Microsoft, has become the largest payer of any sector.

The yield is lighter in tech though, with the average among dividend payers just 2.4%. Compare that with the yield-leading sectors like utilities (4.1%) and telecommunications (5.3%).

Apple and

Exxon Mobil
have volleyed for the title of the biggest dividend payer on an absolute basis this year. Exxon took the edge in July when Apple announced a record $16 billion share buyback, reducing share count, but the two are neck and neck:. Exxon’s dividend annualized will pay $11.09 billion, Apple’s $11.08 billion. (See “Dividend Duel: After Increases, Apple Edges Exxon For America’s Biggest“).

Apple’s kept its dividend steady in July, after a 15% hike to $3.05 quarterly in April. That increase was part of a larger plan to increase capital returned to shareholders that also includes $60 billion worth of share buybacks by the end of 2015. Critics of pure dividend investing say such buybacks should be weighed as least as heavily as dividends. (See “How Dividend Chasers Are Missing The Forest For The Trees“).

Microsoft, which “brought tech companies into the dividend game” when it launched its payout in 2003, Silverblatt says, and currently has an annualized outlay of $9.3 billion. Even though Apple has joined the ranks of payers with Microsoft,

Intel
and

Cisco Systems
, there are plenty of younger tech companies who believe they have better uses for their cash than doling it out to shareholders. One,

Google
, is among the biggest companies in the S&P 500 to not pay a dividend.

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