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More and more S&P 500 companies are turning into dividend stocks, as yield-producing investments are becoming the hottest attraction in 2013.
Collective dividends per share for Standard & Poor's 500 companies increased roughly 16% year-over-year in 2012. Meanwhile, the number of companies paying a dividend over that period reached a new 13-year high of 405, or roughly 81% of the S&P 500, data from Factset shows.
Some 60% of these dividend stocks yield more than the 10-year Treasury, according to BlackRock.
Yield-starved investors have flocked to these equities in this ZIRP (zero interest rate policy) environment. More companies are embracing the shift and have implemented, increased or paid special dividends as a way to appease shareholders and attract new capital.
History shows that dividends have been a powerful source of total return in an investment portfolio. Since 1926, they have represented over 50% of the total market return.
Presently, even as benchmarks hit fresh milestones again and again, investors favor dividend stocks.
That's part of the reason Goldman Sachs Group (NYSE: GS) raised its year-end target for the S&P 500 to 1,750, up from 1,575.
Goldman's chief equity strategist David Kosten explained he expects higher-than-expected dividends from S&P 500 companies to attract income-seeking investors to stocks. He cited the current low-interest rate environment "which helps dividends and stocks more generally" for the upped target.
Notably, companies paying rich dividends have fared best.
Since 2009, the highest yielding stocks (with an average yield of 6.0%) turned in a monthly average return 0.23% above the S&P 500 Index, while the lowest yielding stocks averaged a monthly return of 0.56% below the S&P.
The lowest yielding group (with an average of 0.8%) even performed poorer than those that paid no dividends at all.
But like we've warned before, this doesn't mean just any dividend stock will do...
Dividend Stocks: It Pays to Be Choosy
Given the plethora of choices, investors must be selective. Simply chasing yield is never prudent.
Here are ten things to look for when investing in dividend stocks: