Nov 18 (Reuters) - S&P 500 dividends are likely to fall about 1% this year, much less than previously expected, as companies reinstate previously suspended payments as they become more confident about recovering from the coronavirus, according to S&P Dow Jones Indices.

S&P 500 companies slashed or suspended over $40 billion in dividends in the second quarter, the deepest quarterly drop since 2009.

But cuts tapered off mid-year as the U.S. economy began to rebound and some companies reinstated their dividends, while Microsoft in September hiked its dividend by 10%.

As a result, dividends paid by S&P 500 companies are likely to end 2020 at $479.5 billion, compared to $485.5 billion last year, according to S&P Dow Jones Indices. Although smaller than expected, the annual decline would still be the first since 2009 during the financial crisis.

S&P Dow Jones Indices' newest projection is a major improvement from earlier in 2020, when analysts expected the pandemic to result in as much as a 10% annual decline in dividends.

"Last year was a record year. This year your paycheck is going to be down 1%," said S&P Dow Jones Indices analyst Howard Silverblatt. "You can cry, but I’m not feeling sad for 1%."

(Reporting by Noel Randewich Editing by Nick Zieminski)