The turnaround in dividends has been breathtaking. During the second quarter 505 U.S. companies boosted their dividends. That comes after 677 companies did in the first quarter. Compare that with the 37 companies that cut their dividends in the second quarter and 31 that cut in the first quarter.
Not only are dividends being paid at record-breaking levels, but they're very competitive versus investors' other options. The Standard & Poor's 500 is currently yielding 2.0 percent. That means investors can get more income from dividends than from the 10-year Treasury, which is currently yielding 1.5 percent.
And while dividends are already at record levels, expect them to rise further, some say. S&P Dow Jones Indices predicts dividends to rise again this year by 16 percent. If forecasts are correct, 70 percent of the stocks in the Standard & Poor's 500 will boost their dividends this year.
Companies can certainly cut their dividends at any time. But the current level of dividends is easily affordable for companies cutting the checks. S&P 500 companies are only paying out 31 percent of their earnings in the form of dividends, down considerably from the 52 percent of earnings companies have traditionally paid out.
It's not all rosy, though. Thanks to tax-cutting regulation in 2003, most investors pay just 15 percent tax on their dividends. However, unless Congress takes action, that dividend tax rate could jump. For some taxpayers, the tax rate on dividends could jump to 43.4 percent, S&P Dow Jones Indices estimates. If nothing happens, some investors may choose to sell shares of some dividend paying stocks prior to the end of the year.