Dividends Are Back, and They're Not Going Away

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Even if the hard-charging stock market should run into a wall later, investors can take comfort that this likely will be another huge year for dividend payouts.

As if the $85 billion in monthly liquidity from the Federal Reserve wasn't enough, big companies have been helping out with $14.5 billion in dividend increases, according to Standard & Poor's Dow Jones Indices.

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While dividend increases and stock market gains don't always go hand in hand, the combination has presented a powerful potion for investors in 2013 that market experts look to continue.

"These are significant numbers," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "Dividends have been increasing. We are no longer in recovery mode, we are fully back."

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Investors fled dividend stocks in late 2012 over fears that the "fiscal cliff" of spending cuts and tax increases would hurt the space especially hard.

But worst-case scenarios failed to materialize as the tax increased to 20 percent from 15 percent, and only for the wealthiest investors.

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The SPDR S&P Dividend exchange-traded fund has jumped more than 14 percent in 2013, outpacing the S&P 500's 11 percent rise.

Companies, meanwhile, remain flush with cash, with nonfinancials holding about $1.8 trillion on their balance sheets. Dividends are one way to use that cash to reward shareholders.

Investors looking for protection against a potentially volatile market prefer dividend-payers, though those companies sometimes don't provide the big short-term bounces of smaller companies.

"They like buybacks because they're much quicker returns," Silverblatt said. "A dividend is a commitment going forward. You better make sure you pay it because there's a penalty if you cut."

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For those worrying about dividend payouts getting overdone, that doesn't appear likely soon.

Though the percentage of S&P 500 companies paying dividends has reached a 14-year high at more than 81 percent - it's 100 percent for the Dow industrials - payout ratios as a percentage of profit remain well below the historical average.

"All the numbers are positive on the dividends. The negative is that companies are slow. They're paying out out in record amounts, but not a record as compared to what they're making," Silverblatt said. "But if you're looking for income, you don't have much of a choice."