Political  Calculations

October 2012 marked a significant event for the S&P 500 - the first time since 1999 that there were more than 400 dividend paying companies in the index!

But what affects the number of companies that pay dividends?

To answer that question, we turned to Standard and Poor's Dividends and Payers report [Excel spreadsheet], which provides the data for the number of dividend paying companies in the S&P for each year since 1980. We've taken that data, combined it with some significant milestones and presented it in the chart below (which is updated from our 2009 post on the topic.)

We find that while recessions tend to lower the number of companies paying dividends while they're ongoing, which we would expect, we find that the bigger driver of what affects the number of companies paying dividends to individual shareholders, retirement and pension plans, et cetera would appear to be the relative tax rate of dividends with respect to capital gains. S&P 500 Number of Dividend Paying Companies, 1980-2012

For example, in 1978, before we have data showing the percentage of S&P 500 dividend payers, the capital gains tax rate was reduced from a maximum tax rate of 39.9% (that's on paper - the real maximum capital gains tax rate was 49.9% as a result of an interaction with the maximum regular income tax rate) to 28%, which was then lowered to 20% in 1981.

By contrast, the tax rate for dividends was the same as for personal income taxes, with a maximum tax rate of 50% beginning in 1982. Prior to 1982, the maximum personal income tax rate was 70%.


Political Calculations

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