S&P 500 Dividends Just Hit an All-Time Low Going Back to the 1800s — Here’s What Retirees Need to Know

The big of Retire SMART Podcast opened Episode 416 with a fig that should halt each income-focused retiree successful their tracks. The S&P 500's dividend output has fallen to astir 1.1%, an all-time debased going backmost to the 1800s. His framing was blunt: "The dividend usually fluctuates betwixt 2 and change, and sometimes up to 3.5% successful mean marketplace conditions."

If your status income program assumes the S&P 500 volition propulsion disconnected the 2% to 3% it historically paid, you are budgeting against a output that nary longer exists. A $500,000 portfolio invested successful an S&P 500 scale money yielding 1.1% generates astir $5,400 a twelvemonth successful dividends. The aforesaid portfolio astatine a 3% output would make $15,000. That spread is the full problem.

The verdict: the informing is right, the mathematics proves it

The host's telephone to reassess is correct, and the crushed is mechanical, not emotional. Dividend output is simply a ratio. "What they're paying retired versus what the worth oregon the outgo of the share" is however helium described it. When stock prices contention up of dividend growth, output compresses. That is precisely what has happened.

Look astatine what the S&P 500 has done. SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up 28% implicit the past twelvemonth and 80% implicit 5 years, trading adjacent $746. Meanwhile, the scale has go a concentrated stake connected companies that reinvest alternatively than distribute. NVIDIA (NASDAQ:NVDA) unsocial is 8% of SPY, Apple (NASDAQ:AAPL) is 7%, and Microsoft (NASDAQ:MSFT) is 5%. Mega-cap tech does not wage 3% yields. That is wherefore the header scale output collapsed.

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Now comparison the income side. The 30-year Treasury yields astir 5% and the 2-year yields astir 4%. A retiree holding $500,000 successful 30-year Treasuries collects astir $25,350 successful yearly involvement with zero main hazard if held to maturity. Holding the aforesaid $500,000 successful the S&P 500 astatine 1.1% pays astir $5,400 and exposes the main to afloat equity drawdowns.