The Dow has been marching to new all-time highs for a week, and dividends for these bluest of blue chips are hot on the heels of a new record too.
Dividend payments from the 30 components of the Dow Jones industrial average reached an annual $117 billion in February, or $347.43 per share. That's just 7% below the record $372.46 per share paid out in July 2007, according to data from FactSet Research. All 30 Dow companies issue a dividend.
After falling more than 25% to a 5-year low in the aftermath of the financial crisis, dividend payments have been steadily rising since April 2010. Experts believe it's only a matter of time before a new record is reached.
Just consider the cash hoards companies have on their books. Data from FactSet show that the Dow companies have more than $493 billion in cash on their balance sheets, just shy of the record $495 billion set in 2011.
Peter Tuz, president at Chase Investment Counsel, said that as companies continue to recover from the recession, they are "putting a lot more emphasis on dividends now than they even were five years ago." Tuz noted that many companies are paying dividends for the first time, while those that have a history of doing so are increasing them fairly rapidly.
For example, Dow component Microsoft(MSFT) spent a whopping $2.6 billion more on dividend payments in 2012 than it did in 2007, according to FactSet. The technology giant's dividend yield is now more than 3%. Back in 2007, it was less than 1.5%.
Following several years of caution, Corporate America has realized that using cash to pay dividends can drive their stocks higher and reward shareholders.
Thanks Fed! Dow hits all-time high
In addition, companies can attract more conservative investors who might be considering bonds with the lure of a big dividend.The Dow companies boast an average dividend yield of 2.8%, higher than the 2.06% yield of a 10-year Treasury.
"In today's low interest rate environment, companies know that investors are craving higher yields in the form of dividends," he said.