While there is anxiety around lower earnings for 2023, one other metric of investor returns will likely hit another record this year: dividends. Companies in the S & P 500 paid out $564 billion in dividends in 2022, a 10% increase from 2021 and a record payout by far, according to S & P Global. That represents a 1.7% dividend yield, which is small compared with the S & P 500's price decline of 19% last year. Still, dividends are a critical component of investor returns. Many investors reinvest the dividends they receive, and the returns are compounded over the years. You can see this clearly when examining total returns (price plus dividends) for the stock market. Since 1926, the S & P 500 has returned an average of 10.2% a year. Of that, 61% of the gain has been due to price increases, while 39% has been due to dividends, assuming the dividend has been reinvested. Total return S & P 500, 1926-2022 Avg. yearly return: 10.2% Price as % of total return: 61% Dividend as % of total return: 39% Source: S & P Global The total dividend payout is expected to increase once again in 2023. Why? "Companies still have strong cash flow, and margins are still high," said Howard Silverblatt, senior index analyst for S & P Global. Companies are increasing dividends Last year 399 companies in the S & P 500 (nearly 80%) paid a dividend. Of that, 333 of them (83%) increased their dividends. Only five decreased their pay out. Pay dividend: 399 Increased dividend in 2022: 333 Decreased dividend in 2022: 5 Current yield: 1.7% Meanwhile, investors, dismayed by the price declines in equities, piled into ETFs that specialized in paying dividends last year, leading to large inflows. That trend will likely continue into 2023. The Vanguard High Dividend Yield Index (VYM) , for example, with more than $50 billion in assets, saw shares outstanding increase 20%. Dividend ETFs are typically divided into two groups: high dividend and dividend growers. ETFs that specialize in high dividends include iShares Select Dividend ETF (DVY) and Vanguard High Dividend Yield ETF (VYM), and these are typically paying yields in the 3% range. Dividend growers include ProShares S & P 500 Dividend Aristocrats ETF (NOBL) , Vanguard Dividend Appreciation (VIG) and Schwab U.S. Dividend Equity ETF (SCHD) . These typically pay yields in the 2% range. In general, many investors prefer companies that are increasing their dividend every year on a consistent basis. This has been shown to be a superior strategy to simply buying companies that have the highest yields, since those high yields often are in danger of being cut. For example, the ProShares S & P 500 Dividend Aristocrats ETF owns companies that have been increasing their dividends for 25 consecutive years. There are 58 of those in the S & P 500, including Caterpillar, Air Products, Franklin Resources, Aflac, and Procter & Gamble. Their cash flows are still strong, and are expected to continue to see that this year. In recent years, increasing dividends has become the norm for most companies. "They do that every year, that is the typical situation for most of the companies," Silverblatt told me. Silverblatt noted that once a company starts increasing the dividend on a regular basis, it starts attracting new investors. "Even a company that increases their dividend for five consecutive years becomes a talking point, it becomes a part of their culture. Dividends are the last thing to go."