NEW YORK (TheStreet) -- When the Federal Reserve Bank approved the post-stress test capital plans for 28 of the 31 banks subject to the Comprehensive Capital Analysis and Review (CCAR), it set off a flurry of announcements of dividend increases and share repurchases that lit up the tape.
All told, 20 banks and financial firms from the S&P 500 announced dividend increases within a few hours of receiving Fed approval, ranging from a 4.1% rise for US Bancorp to a whopping 400% increase for Citigroup. It amounted to a substantial payday for shareholders, with an estimated additional $3.1 billion of dividends destined for their pocketbooks compared to a just few hours earlier, for a total of $57.7 billion of expected financial-sector dividends this year.
Significantly, the increases mean the financial sector is once again the largest dividend-payer in the S&P 500, a status it hasn't enjoyed since 2008, accounting for 14.7% of expected dividend payments this year.
That share of the dividend pie is a far cry from the sector's peak, though. Prior to the financial crisis, fully 30% of all the dividends paid by the S&P 500 came from the financial sector, accounting for $71.8 billion of the $246.6 billion of S&P 500 dividends in 2007.
The sector's fall from grace was both swift and dramatic. As the regulatory fallout from the crisis brought stricter capital requirements and massive legal costs in the midst of a challenging economic environment, payouts from the sector swiftly plummeted. By 2009, annual dividend payments for the sector fell more than 75% to $17.7 billion, a decline of $54 billion from 2007.
Source: S&P Capital IQ, Reality Shares Research.
Meanwhile the rest of the S&P 500, though severely impacted by global economic woes, has done substantially better. For example, veterans of the dot-com bubble may be surprised at how rapidly the information technology sector has grown as a dividend payer, surging to the top of the chart until it was surpassed by this latest $3.1 billion barrage of new financial dividend announcements. Technology companies paid $14.7 billion in dividends in 2007, accounting for less than 6% of total dividends, but that number has nearly quadrupled since then to an impressive $55.4 billion in projected payments this year, only slightly less than financials.
The net result is a more balanced contribution of dividends from across all sectors of the S&P 500, which benefits dividend investors with much greater diversification. For example, it is noteworthy that when the financial sector is excluded, dividends for the rest of the S&P 500 actually never fell below 2007 levels during the financial crisis. In 2007, the S&P 500 excluding financials paid $174.5 billion in dividends, which rose to $197.1 billion in 2008. Dividends dipped to $178.5 billion in 2009, but did not cross the 2007 threshold despite the tremendous whipsaws of the equity markets. That should be a potent reminder of the relative stability dividend investors enjoy.
Data source: S&P Capital IQ and Reality Shares research