The S&P 500 index now carries a dividend yield of about 2 percent, less than half the long-term average of 4.4 percent.
That's because corporate funds that were previously used to pay dividends are now largely being spent on share buybacks, Jeremy Schwartz, director of research at WisdomTree Investments, told Motley Fool columnist Morgan Housel.
"Rather than searching for the highest current yields, Schwartz says, investors should look for sectors where buybacks are fueling per-share dividend growth," Housel writes in The Wall Street Journal.
Traditional dividend sectors such as utilities and telecommunications already have been driven up to high valuations. But growth dividend sectors like technology and consumer discretionary haven't, Housel notes.
"Historically, you are expected to pay a premium valuation for the growth part of the dividend market," Schwartz said. "You’re not today."
Specifically, he cited Apple, which carries a dividend yield of 1.9 percent, and Microsoft, which carries a yield of 2.43 percent.
The S&P 500 Dividend Aristocrats index, which includes companies that have increased dividends in each of the last 25 years, has returned 14.5 percent over the past 12 months.
Not everyone is down on utility stocks. "We continue to be bullish on U.S. power and natural gas prices, a boon for most diversified utilities and power producers," Travis Miller, director of utilities research for Morningstar, writes on the firm's web sites.
"With sustainable payout ratios, we think dividends could grow as much as 5 percent annually. . . . Those utilities with a favorable combination of constructive regulation and critical infrastructure projects should provide investors the best long-run returns."
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