Look up information on the S&P 500, perhaps via the inexpensive Vanguard S&P 500 Index fund, and you'll see a dividend yield of about 2%. That's not much, but it's not at its lows -- yields fell to 1.14% back in 1999.

But there's more to know about dividends and the S&P 500. For one thing, dividend payments, in absolute value, have been rising lately. The folks at Standard & Poor's have noted that dividend payments in 2007 totaled $27.73, up 11.5% over 2006. In the big picture, total dividend payments for S&P 500 companies came to $246 billion.

Most dividend-paying companies tend to increase their dividends regularly. For example, check out Pfizer's (NYSE: PFE) quarterly dividend amount over some past years:

2008

$0.32

2007

$0.29

2006

$0.24

2005

$0.19

2004

$0.17

2003

$0.15

2002

$0.13

2001

$0.11

2000

$0.09

1999

$0.07333

1998

$0.06333

That's an annual average increase of almost 18% -- not too shabby! S&P analysts expect the S&P 500 to pay out an additional 9.3% in dividends during 2008. The increases might have been steeper, but there's a competing use of excess funds for many companies: stock buybacks. They've been increasing in recent years, driven partly by the slumping stock market. When your company's stock is in the toilet, it can be a good time to buy shares at the deflated prices and then retire them. This can deliver value to shareholders because each remaining share will be worth more, given the reduced overall share count.

Here are a few more interesting things that the S&P pointed out:

  • Some 11 companies within the index began paying dividends for the first time in 2007, bringing the total dividend payers in the S&P 500 to 389, a historically high level. Many well-known companies still don't pay dividends -- for example, Apple (Nasdaq: AAPL) doesn't, while Microsoft (Nasdaq: MSFT) began only in 2003.
  • Compared with the 78% of S&P 500 companies that pay dividends, just 40% of those outside the index pay them. And while 60% of S&P 500 members raised their dividends in 2007, less than 28% of non-index companies did so. This actually makes a lot of sense, because to even get into the S&P 500, you have to be a fairly large company. The smallest components, which recently included Circuit City (NYSE: CC) and MGIC Investment (NYSE: MTG), have market capitalizations around $1 billion. Large companies tend to grow slowly, while smaller ones often need to use any excess cash to grow their businesses.

Finally, Standard & Poor's also noted that its "S&P 500 Dividend Aristocrats" list, which features component companies that have increased their dividend payments in each of the past 25 years, welcomed five new additions: Aflac, Avery Dennison (NYSE: AVY), ExxonMobil, Integrys Energy Group, and Pitney Bowes (NYSE: PBI), while three companies were dropped (Altria, First Horizon National, and SLM.).

What to do
So what should you do with this information? Well, take heart that dividends are alive and well in America. Remember that one of their many benefits is that (at least right now) they're typically taxed at 15% for most taxpayers. In the past, they've been taxed as ordinary income, which commands tax rates that can surpass 30%.

Consider holding dividend payers (and dividend growers) in your portfolio. As my colleague Rich Greifner has pointed out, "Between January 1926 and December 2006, 41% of the S&P 500's total return sprang not from the price appreciation of the stocks in the index, but from the dividends its companies paid out."

First Horizon National, Pitney Bowes, and Pfizer are Motley Fool Income Investor recommendations. If you'd like to invest in some sturdy dividend payers, check out a free trial of our newsletter. There's no obligation, and you'll be able to access all past issues and read about every recommendation in detail.

Longtime Fool contributor Selena Maranjian owns shares of Microsoft. Microsoft and Pfizer are Motley Fool Inside Value recommendations. Apple and Aflac are Motley Fool Stock Advisor recommendations. Try our investing services free for 30 days. The Motley Fool is Fools writing for Fools.