The S&P 500 index includes dividends. As of December 2017, the dividend yield for the S&P 500 was 1.85%. This is below the historical average of 4.41% and close to the all-time low of 1.11% in August 2000. The record high for dividend yields was in 1932 at 13.8%.

In the first half of the 20th century, dividends tended to grow at a similar rate as the stock market. This relationship decisively changed in the 1960s, as stock market gains did not necessarily translate into rising dividends at the same rate. In the bull market of the 1980s, this relationship diverged further when dividend yields fell dramatically as dividends stayed flat and the broader market moved higher.

Reasons for Lower Dividend Yields

Part of the reason for this change in attitude toward dividends has been the reduced inflationary pressures and lower interest rates, reducing pressure on corporations to compete with the risk-free rate of return.

Low interest rates even make low dividends attractive, and high interest rates can make even high dividends unappealing. For example, in 1982, the dividend rate was 6% for the S&P 500, but the interest rate on the 10-year Treasury was above 15%. In contrast, as of December 2017, the dividend yield for the S&P 500 was 1.85% while the yield on the 10-year Treasury was 2.40%.

There is much more demand for dividend stocks in this type of environment. One of the results of central bank policy in expanding the money supply via low interest rates and quantitative easing is making dividend stocks more attractive. Dividends have been lower over time because many companies elect to return cash to shareholders in the form of stock buybacks, rather than dividends, asĀ this technique receives more favorable tax treatment.