Dividend Payments Jumped by $26.5 Billion in 2010

Investing in dividend stocks generated major returns for investors in 2010 as U.S. companies added $26.5 billion to dividend payments, with $8 billion of that increased payout coming in the fourth quarter. The rise in dividend payments is seen as a strong indication that companies are indeed recovering from the dismal economic environment of the last two years, and analysts at Standard & Poor's expect that the trend will continue in 2011, providing a windfall to investors that could lift equity markets higher.

For the year, S&P reported that 1,729 companies increased dividend payments, compared to 1,191 companies recording increases in 2009. Only 145 companies decreased dividend payments in 2010, versus the 804 that did so in 2009. The result was this year's net gain, a far cry from the the net decline of $42.4 billion in dividends in 2009.

"Dividend investors hit the trifecta in 2010," said Howard Silverblatt, senior index analyst at S&P Indices, in a statement Thursday. "Dividend increases were up 45%, decreases declined 82%, and best of all, the forward indicated dividend rate increased over 8%, implying a much better year for dividend income in 2011."

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Investors have benefited significantly from dividend increases thanks to the qualified dividend tax cuts that have been in effect from 2003 through 2010. Silverblatt estimates that investors saved $274 billion in taxes on dividend income during that period, and he predicts an additional dividend tax-break windfall this year.

"The two-year extension of the lower dividend tax rate will add another $74 billion directly into the hands of investors, with a portion of it going back into the market via reinvestment programs, thereby supporting stock prices."

Silverblatt said as the economy improves in 2011, he expects more companies to increase dividends as the rate of dividend decreases declines further.