Although the total amount of dividends paid has been steadily increasing, most big companies are actually not generous payers, considering the portion of earnings they return to shareholders.
The businesses that comprise the S&P 500 Index are projected to pay out only 33% of earnings in the fourth quarter of 2013 -- well below the historical average of 52%.
Let's look at the three S&P 500 companies that write the biggest checks to shareholders and see whether they're being as generous as those eye-popping numbers suggest.
Generous Ma Bell
Ranked No. 3 within the S&P 500 is the telecom giant AT&T (NYSE:T), which paid out $2.4 billion in the third quarter and just announced a modest (and some would say disappointing) 2% increase in the dividend, which has been bumped up each year since 1985. The average annual increase had been 4.8%.
The small increase will not have been a surprise if you looked into the numbers. AT&T already pays out 123% of its earnings (which are projected to grow slowly next year), so there wasn't a lot of room to maneuver. And with a relatively elevated long-term debt-to-equity ratio of 80%, the company probably doesn't want to borrow to return more cash to shareholders.
AT&T might need to use excess cash and to borrow to fund future expansion in wireless and grow revenue. It is considering buying the European operations of Vodafone, which could set the company back as much as $175 billion. It is also in the process of selling off some assets, like its wired operations in Connecticut, to generate cash.
So investors looking for dividend growth from AT&T might need to look elsewhere, at least in the short term.
Apple gives a baggie instead of a bushel
The biggest company in the world by market cap is the second-biggest payer in the S&P 500. Apple (NASDAQ:AAPL) doled out $2.76 billion, or about $3 per share, last quarter.
The company, which just reinstituted its dividend last year after a long hiatus, uses about 29% of earnings to return cash to shareholders. Some of the earnings are parked overseas, probably because Apple doesn't want to bring it back to the U.S. and pay a higher corporate income-tax rate on it. It has issued bonds to help fund the dividend and share buybacks, which also return value to investors.
Apple generates those earnings by selling millions of consumer devices and computers. The company just finished its yearly upgrade of all of its major products and is betting that sales of refreshed iPhones, iPads, and Macs help reverse recent declines in EPS.
CEO Tim Cook predicted an "iPad Christmas" in October, and if things go as planned and growth returns to Cupertino, investors may have a happy holiday season indeed. Apple may even be able to increase its dividend and move up to No. 1.
Not exactly a gusher
Topping the list of big companies that pay big dividends is big oil and gas producer ExxonMobil (NYSE:XOM). The company, which is ranked No. 2 by market cap, has made headlines recently by calling for the government to allow crude-oil exports. It narrowly beat out Apple by paying $2.77 billion last quarter. About 31% of earnings are returned to shareholders in the form of dividends.
ExxonMobil is asking for the export ban to be lifted because the revitalization in domestic energy-production has created an adequate supply of oil and natural gas here, and opening up overseas markets will help its business.
The company probably needs those exports in order to improve growth. Revenue has been increasing at only single-digit rates over the past half-decade, even as oil prices have risen.
A reasonable P/E ratio of about 12 and low debt and payout ratios make ExxonMobil an attractive stock to consider for dividend growth hunters.
The really big American companies are projected to pay out only a fraction of earnings in the form of dividends this quarter. Chief among them are big spenders like ExxonMobil and Apple, which look appealing because they can well afford to share more wealth with shareholders.
Meanwhile, AT&T pays out a far great portion of its earnings than the average S&P 500 constituent, so if you seek dividend growth, you may want to look elsewhere.
Mark Morelli owns shares of Apple and AT&T. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.