Dividends and Earnings during Recent Bear Markets

[SimpleGift]

In a recent Forum post, we looked at the course of S&P 500 index prices during the 2000-02 Tech Crash and the 2007-09 Financial Crisis. Certainly stock prices are what matter to most investors, but it can also be instructive to look at the behavior of S&P 500 dividend payouts and corporate earnings during these two recent bear markets.

Though the Tech Crash was a long bear market, the real, inflation-adjusted earnings recession took about 45 months to fully recover (in blue, chart below). Real earnings dropped 55% from their prior peak, followed by a U-shaped recovery. Real dividends were fairly stable during this recession, declining just 7% in the period (in green).

• 
  Source: Monthly data from Shiller

The Financial Crisis was a shorter bear market, but the earnings recession took about 60 months to fully recover (in blue, chart below). S&P 500 companies' real earnings fell 90%, followed by a V-shaped recovery. The decline in real dividends was somewhat delayed during this recession, and was -25% from the high of the period (in green).

• 
  Source: Monthly data from Shiller

Discussion: Though it's too early to tell the trajectory of S&P 500 earnings and dividend payouts for 2020, from what we know so far about the nature of the coronavirus outbreak around the world, one might expect this earnings and dividend recession to be V-shaped, like the Financial Crisis — but shorter and shallower if we are at all lucky.

Your thoughts?

[Thesaints]

Bar a miracle, we are not going to be lucky.
In 2008 airlines did not shut down.

[SimpleGift]

Just to add a longer-term perspective to this thread. Though earnings recessions can be severe, and many investors loath a cut to their dividends, these events have thankfully been relatively short-lived and transitory in recent decades (chart below).

• 
  Source: Monthly data from Shiller

In the end, we stock investors are making a long-term wager on the dynamism and resiliency of capitalist enterprise, and have been amply rewarded for buying and holding U.S. equities through thick and thin.

[EnjoyIt]

Nice discussion, thanks for bringing it up.

I met a dividend investor yesterday who tried to sell me on dividend stocks in companies who have a strong history of consistently raising dividends. I did not argue as I know better than to offer unsolicited advice. I did ask how he is doing overall and he mentioned how he is down over 50% from peak. It is all fine and good until dividends start getting cut or if a company or two goes bankrupt.

[BV3273]

Nice discussion, thanks for bringing it up.

I met a dividend investor yesterday who tried to sell me on dividend stocks in companies who have a strong history of consistently raising dividends. I did not argue as I know better than to offer unsolicited advice. I did ask how he is doing overall and he mentioned how he is down over 50% from peak. It is all fine and good until dividends start getting cut or if a company or two goes bankrupt.

While dividends are not guaranteed I find it funny that you think any of these dividend aristocrats will be going bankrupt. The majority of these companies have weathered storms worse than this.

[sperry8]

Bar a miracle, we are not going to be lucky.
In 2008 airlines did not shut down.

The total aviation industry is 3.5% of world GDP. And aviation is not 0... so the hit will be less. Further, a vaccine is 2 years away worst case. So it's a drop then an upswing. Same goes for other affected industries.

[firebirdparts]

Awesome charts, nice job. Probably doesn’t change anybody’s mind, which to me is odd, but would certainly help those thinking about it for the first time.

[SimpleGift]

While dividends are not guaranteed I find it funny that you think any of these dividend aristocrats will be going bankrupt. The majority of these companies have weathered storms worse than this.

Certainly right. But it's worth noting that, based on the performance of Vanguard's dividend-oriented funds so far this year, those with a focus on high dividend yields have declined more than the overall market — while those focusing on longer-term dividend growth and appreciation have held up better:

• High-Dividend Yield Index (VHYAX)...........-25.0%
  Equity Income Fund (VEIRX).......................-24.2%
  S&P 500 Index Fund (VFIAX).........................-21.0%
  Dividend Growth Fund (VDIGX)...................-18.2%
  Dividend Appreciation Index (VDADX)........-18.1%

As more companies announce dividend plans in the weeks ahead, one might expect this trend to continue.

[delamer]

Just to add a longer-term perspective to this thread. Though earnings recessions can be severe, and many investors loath a cut to their dividends, these events have thankfully been relatively short-lived and transitory in recent decades (chart below).

• 
  Source: Monthly data from Shiller

In the end, we stock investors are making a long-term wager on the dynamism and resiliency of capitalist enterprise, and have been amply rewarded for buying and holding U.S. equities through thick and thin.

I completely agree with your last thought; it is a key point that too often gets overlooked duirng crises.

As another piece of information, here is a table showing the nominal dividends thrown off by the S&P 500 each year: https://www.multpl.com/s-p-500-dividend/table/by-year

In nominal terms, it took 4 years for dividends to recover from their high in 2008. Anyone who is dependent on dividends to cover core expenses each year should think carefully about that approach.

[Schlabba]

Just to add a longer-term perspective to this thread. Though earnings recessions can be severe, and many investors loath a cut to their dividends, these events have thankfully been relatively short-lived and transitory in recent decades (chart below).

• 
  Source: Monthly data from Shiller

In the end, we stock investors are making a long-term wager on the dynamism and resiliency of capitalist enterprise, and have been amply rewarded for buying and holding U.S. equities through thick and thin.

I completely agree with your last thought; it is a key point that too often gets overlooked duirng crises.

As another point of information, here is a table showing the nominal dividends thrown off by the S&P 500 each year: https://www.multpl.com/s-p-500-dividend/table/by-year

In nominal terms, it took 4 years for dividends to recover from their high in 2008. Anyone who is dependent on dividends to cover core expenses each year should think carefully about that approach.

If you rely on only dividends, that would mean you are 100% equity. Everyone 100% equity should think carefully.

But if you would have, say, a 75% total market and 25% total bond market, versus 75% high dividend yield and 25% total bond market, would high dividend yield be "safer" because dividends didn't decline so much during those recessions?

[SimpleGift]

But if you would have, say, a 75% total market and 25% total bond market, versus 75% high dividend yield and 25% total bond market, would high dividend yield be "safer" because dividends didn't decline so much during those recessions?

No. In fact, we can compare the performance of Vanguard's high-dividend yield index fund against the broader stock market index during the 2007-2009 Financial Crisis:

• Vanguard Total Stock Mkt Idx Inv (VTSMX)
  Vanguard High Dividend Yield Index Inv (VHDYX)
  
  Source: Morningstar

High-dividend yield stocks were equally if not more vulnerable during this selloff than the total stock market. And in recent years, during a time of historically low interest rates, these companies have been bid up in price by income-seeking investors, leading to a deeper relative decline in the current crash compared with the total market.

In short, there's not much evidence that high-dividend yielding stocks are "safer" in a bear market.

[sarabayo]

Bar a miracle, we are not going to be lucky.
In 2008 airlines did not shut down.

The total aviation industry is 3.5% of world GDP. And aviation is not 0... so the hit will be less. Further, a vaccine is 2 years away worst case. So it's a drop then an upswing. Same goes for other affected industries.

Also, there's a pretty simple explanation for the discrepancy between 2008 and now in terms of airlines. The crisis in 2008 was not directly related to airlines, so the issue they faced was lack of demand due to people having less spending money. This time the pressure on the airlines is that people literally fear for their lives if they travel anywhere. The coronavirus pandemic directly hits anything travel-related. So it's not surprising they're taking a harder hit this time.

[Schlabba]

But if you would have, say, a 75% total market and 25% total bond market, versus 75% high dividend yield and 25% total bond market, would high dividend yield be "safer" because dividends didn't decline so much during those recessions?

No. In fact, we can compare the performance of Vanguard's high-dividend yield index fund against the broader stock market during the 2007-2009 Financial Crisis:

• Vanguard Total Stock Mkt Idx Inv (VTSMX)
  Vanguard High Dividend Yield Index Inv (VHDYX)
  
  Source: Morningstar

High-dividend yield stocks were equally if not more vulnerable during this selloff than the total stock market. And in recent years, during a time of historically low interest rates, these companies have been bid up in price by income-seeking investors, leading to a deeper relative decline in the current crash compared with the total market.

In short, there's not much evidence that high-dividend yielding stocks are "safer" in a bear market.

I don't get it. If volatility is the source of sequence-of-return-risk, and dividends are less volatile, isn't it better to get more of your withdrawal from dividends instead of selling equity?

[jebmke]

I don't get it. If volatility is the source of sequence-of-return-risk, and dividends are less volatile, isn't it better to get more of your withdrawal from dividends instead of selling equity?

Have to look at the total. Besides, anyone who is holding a reasonably moderate risk portfolio (and re-balancing appropriately) isn't withdrawing from equity, they are withdrawing from bonds. I retired in December, 2007 and for quite a while I was withdrawing from the bond side (and also shifting money FROM bonds/cash to equity). I was not spending dividends.

[dbr]

I don't get it. If volatility is the source of sequence-of-return-risk, and dividends are less volatile, isn't it better to get more of your withdrawal from dividends instead of selling equity?

No. In a safe withdrawal rate model the variable that affects the outcome is total return which is a (sort-of) random variable with a variability. In this context risk is the variability of the total return. During withdrawal the sequence in which the annual total returns appear for the same long term average has an effect on the amount of withdrawal that can be taken. In the case that investments are selected on a dividend criterion one has to establish that the mean and variability of the return would give better results than selecting investments otherwise, such as total market. That difference does not materialize for the most part. Dividends being less volatile than the total return is irrelevant.

[JD58]

Just to add a longer-term perspective to this thread. Though earnings recessions can be severe, and many investors loath a cut to their dividends, these events have thankfully been relatively short-lived and transitory in recent decades (chart below).

• 
  Source: Monthly data from Shiller

In the end, we stock investors are making a long-term wager on the dynamism and resiliency of capitalist enterprise, and have been amply rewarded for buying and holding U.S. equities through thick and thin.

Looks to me that just reinvesting the dividends is the real long term winner due to total return growth.

[MathIsMyWayr]

Just to add a longer-term perspective to this thread. Though earnings recessions can be severe, and many investors loath a cut to their dividends, these events have thankfully been relatively short-lived and transitory in recent decades (chart below).

• 
  Source: Monthly data from Shiller

In the end, we stock investors are making a long-term wager on the dynamism and resiliency of capitalist enterprise, and have been amply rewarded for buying and holding U.S. equities through thick and thin.

Looks to me that just reinvesting the dividends is the real long term winner due to total return growth.

This is similar to the logic behind share buyback. In both cases, money flows out of the company. Certain share holders opt for cash while others hold higher percentage of the company.

[delamer]

Just to add a longer-term perspective to this thread. Though earnings recessions can be severe, and many investors loath a cut to their dividends, these events have thankfully been relatively short-lived and transitory in recent decades (chart below).

• 
  Source: Monthly data from Shiller

In the end, we stock investors are making a long-term wager on the dynamism and resiliency of capitalist enterprise, and have been amply rewarded for buying and holding U.S. equities through thick and thin.

I completely agree with your last thought; it is a key point that too often gets overlooked duirng crises.

As another point of information, here is a table showing the nominal dividends thrown off by the S&P 500 each year: https://www.multpl.com/s-p-500-dividend/table/by-year

In nominal terms, it took 4 years for dividends to recover from their high in 2008. Anyone who is dependent on dividends to cover core expenses each year should think carefully about that approach.

If you rely on only dividends, that would mean you are 100% equity. Everyone 100% equity should think carefully.

But if you would have, say, a 75% total market and 25% total bond market, versus 75% high dividend yield and 25% total bond market, would high dividend yield be "safer" because dividends didn't decline so much during those recessions?

I said nothing about “rely on only dividends.” Most retirees have Social Security and bond holdings.

But if you are taking just dividends and avoiding selling equity shares (say by using a 4% withdrawal rate from your portfolio), then your income can fluctuate significantly if the dollar amount of dividends falls.

Many who invest for dividends think they are bulletproof (and recession proof), and they aren’t.

[jebmke]

Spending dividends is the same as selling equity with zero basis.

[BV3273]

While dividends are not guaranteed I find it funny that you think any of these dividend aristocrats will be going bankrupt. The majority of these companies have weathered storms worse than this.

Certainly right. But it's worth noting that, based on the performance of Vanguard's dividend-oriented funds so far this year, those with a focus on high dividend yields have declined more than the overall market — while those focusing on longer-term dividend growth and appreciation have held up better:

• High-Dividend Yield Index (VHYAX)...........-25.0%
  Equity Income Fund (VEIRX).......................-24.2%
  S&P 500 Index Fund (VFIAX).........................-21.0%
  Dividend Growth Fund (VDIGX)...................-18.2%
  Dividend Appreciation Index (VDADX)........-18.1%

As more companies announce dividend plans in the weeks ahead, one might expect this trend to continue.

It makes sense to me. Slow and steady wins the race. High yield = high risk in my mind. I think as bond yields drop some people that have relied on bonds for income will have to get that itch scratched somewhere else possibly with these old school dividend payers.

[TJSI]

Thanks SimpleGift. Good data and excellent presentation.

[rossington]

No. In fact, we can compare the performance of Vanguard's high-dividend yield index fund against the broader stock market index during the 2007-2009 Financial Crisis:

• Vanguard Total Stock Mkt Idx Inv (VTSMX)
  Vanguard High Dividend Yield Index Inv (VHDYX)
  
  Source: Morningstar

High-dividend yield stocks were equally if not more vulnerable during this selloff than the total stock market. And in recent years, during a time of historically low interest rates, these companies have been bid up in price by income-seeking investors, leading to a deeper relative decline in the current crash compared with the total market.

In short, there's not much evidence that high-dividend yielding stocks are "safer" in a bear market.

Does this chart include reinvested dividends? Just curious.

[SimpleGift]

Does this chart include reinvested dividends? Just curious.

Yes, it shows total returns, with dividends reinvested.

[Ben Mathew]

Useful perspective. It's good to look at the earnings of the business instead of focusing only on price changes. Earnings will be hit, and it's hard to know if this crisis will be better or worse than others. But it will come back.

[EnjoyIt]

Nice discussion, thanks for bringing it up.

I met a dividend investor yesterday who tried to sell me on dividend stocks in companies who have a strong history of consistently raising dividends. I did not argue as I know better than to offer unsolicited advice. I did ask how he is doing overall and he mentioned how he is down over 50% from peak. It is all fine and good until dividends start getting cut or if a company or two goes bankrupt.

While dividends are not guaranteed I find it funny that you think any of these dividend aristocrats will be going bankrupt. The majority of these companies have weathered storms worse than this.

No company is impervious to bankruptcy or at the very least such a massive drawdown in value and dividends.
GE comes to mind right now.

[DLR62]

Nice discussion, thanks for bringing it up.

I met a dividend investor yesterday who tried to sell me on dividend stocks in companies who have a strong history of consistently raising dividends. I did not argue as I know better than to offer unsolicited advice. I did ask how he is doing overall and he mentioned how he is down over 50% from peak. It is all fine and good until dividends start getting cut or if a company or two goes bankrupt.

He may have been referring to the Dividend Aristrocrats. This is a list of 60 or so companies that have raised their dividend every year for at least 25 consecutive years which includes a few hard crashes. There are even Aristocrat ETFs. They have proven to suffer less draw-down than the SP500 and that includes the last too hard crashes. Make no mistake you are still getting your nose bloodied. These stocks were historically overvalued (last month) due to their popularity and "promise" of being safer. We'll see how it goes this time. I doubt that dividend stocks in general offer much protection, because many of them cut dividends during a recession. Especially this time when the economy was shut down.

[BV3273]

Nice discussion, thanks for bringing it up.

I met a dividend investor yesterday who tried to sell me on dividend stocks in companies who have a strong history of consistently raising dividends. I did not argue as I know better than to offer unsolicited advice. I did ask how he is doing overall and he mentioned how he is down over 50% from peak. It is all fine and good until dividends start getting cut or if a company or two goes bankrupt.

While dividends are not guaranteed I find it funny that you think any of these dividend aristocrats will be going bankrupt. The majority of these companies have weathered storms worse than this.

No company is impervious to bankruptcy or at the very least such a massive drawdown in value and dividends.
GE comes to mind right now.

GE is not a dividend aristocrat.

[SimpleGift]

Interesting to note that revised earnings forecasts are starting to come out for the year ahead. Just today, Yardeni Research published their projected earnings growth rates for S&P 500 index companies in 2020 (chart below):

• 
  Data source: Yardeni Research

No doubt these early forecasts are just a "shot in the dark" and will be revised many times in the months ahead, but the numbers above could give an idea of where we're headed — e.g., -52% earnings growth for 2nd quarter 2020.

[Enzo IX]

Interesting to note that revised earnings forecasts are starting to come out for the year ahead. Just today, Yardeni Research published their projected earnings growth rates for S&P 500 index companies in 2020 (chart below):

• 
  Data source: Yardeni Research

No doubt these early forecasts are just a "shot in the dark" and will be revised many times in the months ahead, but the numbers above could give an idea of where we're headed — e.g., -52% earnings growth for 2nd quarter 2020.

Well I guess if those estimates are somewhat correct then stocks really haven't gotten any cheaper. Yikes!

[grayfox]

deleted

[AlohaJoe]

Just to add a longer-term perspective to this thread. Though earnings recessions can be severe, and many investors loath a cut to their dividends, these events have thankfully been relatively short-lived and transitory in recent decades (chart below).

• 
  Source: Monthly data from Shiller

In the end, we stock investors are making a long-term wager on the dynamism and resiliency of capitalist enterprise, and have been amply rewarded for buying and holding U.S. equities through thick and thin.

Excellent charts! Way better than the price charts most people dwell on.

I will take that green line any day.

Since you'll take the green line "any day", here's the same exact thing but from a different time period:



Lose over 20% of your spending power and never get it back, even after two decades.

[grayfox]

deleted

[CyclingDuo]

Useful perspective. It's good to look at the earnings of the business instead of focusing only on price changes. Earnings will be hit, and it's hard to know if this crisis will be better or worse than others. But it will come back.

Agree. If we look at the S&P during recessions since the 1940's, time + patience is required of investors for the most part.



The reinvestment of dividends as part of one's total return strategy remains what it is...





Some companies have already cut dividends, and there will be additional companies on that list that cut as a result of economic conditions. There will also be companies that continue with their dividends and even those that grow their dividends through this crisis. We will know in retrospect how this recession/bear market stacks up to prior ones to see if it surpasses the dividend cuts during the financial crisis or not...



In terms of owning companies with great balance sheets where covering the dividend will not be a problem, never let a good crisis go to waste if you have a shopping list for the longer term and are looking to add additional or new shares during the share price discovery that has been going on in recent weeks. In addition to our regular automatic investments of retirement and taxable accounts each week for the index funds, we plugged our noses and put some of our new capital from a real estate sale to work last Monday as the babies on our shopping list were being thrown out with the bath water. Good chance some more plugged nosed entry points will present themselves over the course of this crisis - so will be looking to scale in a bit more as each opportunity presents itself in this episodic event.

[firebirdparts]

Lose over 20% of your spending power and never get it back, even after two decades.

For those dates, that's pretty fantastic. A man could live on that.

[JackoC]

Useful perspective. It's good to look at the earnings of the business instead of focusing only on price changes. Earnings will be hit, and it's hard to know if this crisis will be better or worse than others. But it will come back.

Agree. If we look at the S&P during recessions since the 1940's, time + patience is required of investors for the most part.

Some companies have already cut dividends, and there will be additional companies on that list that cut as a result of economic conditions. There will also be companies that continue with their dividends and even those that grow their dividends through this crisis. We will know in retrospect how this recession/bear market stacks up to prior ones to see if it surpasses the dividend cuts during the financial crisis or not...

I posted this on another thread in response to that table, posted by you or someone else I don't recall. It's a forward looking view, the current term structure of the S&P 500 quarterly dividend futures. First link is an easy to read graph from Seeking Alpha from around 10 days ago, second link is current prices on those futures from CME's site, basically similar
https://seekingalpha.com/article/433403 ... -s-economy
https://www.cmegroup.com/trading/equity ... index.html

Right now the market foresees a much larger drop in dividends by 2021 than in most previous stock downturns or recessions, about a 50% drop between 2020 Q1 and 2021 Q2 based on the Jun 2021 dividend futures price. I think this makes sense because companies will face a probably unprecedented drop in business volume (though with a very real possibility of a relatively rapid recovery at some point), plus govt aid to tide them over, with the political pressure that will come with that not to pay out money to parties other than workers and suppliers. Definitely not to buy back stock, but also probably to sacrifice dividends before making other cuts they might in a 'normal' down turn.

Note, this is not a prediction of total return. Total return from now Jun 2021 could be terrific, terrible, or anywhere in between: that's impossible to predict, and neither the regular index futures nor the dividend futures give any clue about that. It's also not a prediction of which or how many companies go into Chapter 11. Cutting dividends is, obviously, a measure taken to avoid going into Chapter 11, successfully or not.

So in summary and as everybody knows or should, on a pre tax first order basis only total return matters, and lower or higher dividends don't necessarily mean lower or higher total return, 'all depends'. However there are secondary cash management, tax and psychological effects to investors 'living off income' if dividends get cut a lot. The market seems to expect that this time around.

Also this data is for the S&P as a whole, as is much of the backward looking data already posted. Neither would necessarily apply 1:1 to the high dividend paying sector of the index.

[CyclingDuo]

Useful perspective. It's good to look at the earnings of the business instead of focusing only on price changes. Earnings will be hit, and it's hard to know if this crisis will be better or worse than others. But it will come back.

Agree. If we look at the S&P during recessions since the 1940's, time + patience is required of investors for the most part.

Some companies have already cut dividends, and there will be additional companies on that list that cut as a result of economic conditions. There will also be companies that continue with their dividends and even those that grow their dividends through this crisis. We will know in retrospect how this recession/bear market stacks up to prior ones to see if it surpasses the dividend cuts during the financial crisis or not...

I posted this on another thread in response to that table, posted by you or someone else I don't recall. It's a forward looking view, the current term structure of the S&P 500 quarterly dividend futures. First link is an easy to read graph from Seeking Alpha from around 10 days ago, second link is current prices on those futures from CME's site, basically similar
https://seekingalpha.com/article/433403 ... -s-economy
https://www.cmegroup.com/trading/equity ... index.html

Right now the market foresees a much larger drop in dividends by 2021 than in most previous stock downturns or recessions, about a 50% drop between 2020 Q1 and 2021 Q2 based on the Jun 2021 dividend futures price. I think this makes sense because companies will face a probably unprecedented drop in business volume (though with a very real possibility of a relatively rapid recovery at some point), plus govt aid to tide them over, with the political pressure that will come with that not to pay out money to parties other than workers and suppliers. Definitely not to buy back stock, but also probably to sacrifice dividends before making other cuts they might in a 'normal' down turn.

Note, this is not a prediction of total return. Total return from now Jun 2021 could be terrific, terrible, or anywhere in between: that's impossible to predict, and neither the regular index futures nor the dividend futures give any clue about that. It's also not a prediction of which or how many companies go into Chapter 11. Cutting dividends is, obviously, a measure taken to avoid going into Chapter 11, successfully or not.

So in summary and as everybody knows or should, on a pre tax first order basis only total return matters, and lower or higher dividends don't necessarily mean lower or higher total return, 'all depends'. However there are secondary cash management, tax and psychological effects to investors 'living off income' if dividends get cut a lot. The market seems to expect that this time around.

Also this data is for the S&P as a whole, as is much of the backward looking data already posted. Neither would necessarily apply 1:1 to the high dividend paying sector of the index.

Yes, I saw your previous response. No doubt this episodic event will be measured, in retrospect, as a short term severe earnings and dividend recession for the S&P 5000 before bouncing back - whether or not the futures you point out end up being correct or near correct. How valid of a track record do the quarterly dividend futures in non-episodic markets have?

As I said above, for the investor with patience and a vision for the longer term, the price action during bear markets presents opportunities as we know things are going to be horrible for many companies this year and potentially going into 2021. Even those companies that are taking government bailouts and required to suspend their dividends for a period of time will present opportunity on a case by case example. Watching the market price in a sudden recession has been awe-inspiring to say the least that brings back plenty of 1987 memories in terms of sheer speed. I am sure there remains plenty of awe and shock to go before eventual clarity on the other side of the virus imparted portion of the recession starts to emerge. I already had a shopping list assembled (I started searching for dividend paying stocks in prior individual stocks experiencing their own bear markets in 2017/18), so this time around with a bear market for the overall market has created what looks to be opportunity for the longer haul in many of the names that were already on my assembled list.

I am not of the ilk that believes once we emerge on the other side of the crisis that life will change in a major way and everyone will be working from home, ordering all of their groceries online to be delivered, not traveling on vacations, people not eating out in restaurants, people not attending live performances, educational institutions moving solely to online platforms, etc... . We will return to a lot of the same old, same old even if a percentage of things do change. So, we remain in stand there and do nothing mode for previously invested assets, and we take advantage of price action opportunities with new capital for the longer term view.

[SimpleGift]

No doubt these early forecasts are just a "shot in the dark" and will be revised many times in the months ahead, but the numbers above could give an idea of where we're headed — e.g., -52% earnings growth for 2nd quarter 2020.

Well I guess if those estimates are somewhat correct then stocks really haven't gotten any cheaper. Yikes!

It depends upon one's time frame. If thinking just about the year ahead, then forecasts of -26% earnings growth for 2020 don't seem encouraging for buying stocks. But if one has a longer term focus, then one is making a wager on the expected earnings growth of U.S. companies in the decades to come. Based on historical trends for S&P stocks, this is much more inspiring:

• Real Earnings Growth Forecast for 2020.........-26.4%
  Real Earnings Growth Rate since 1871.............+1.9%
  Real Earnings Growth Rate since 1990............ +3.8%

The point is that, if investing on the scale of decades and looking beyond the year ahead, stocks very likely have gotten cheaper than just a month ago, based on their expected future earnings growth out to, say, the year 2040 or 2050.

[JackoC]

Useful perspective. It's good to look at the earnings of the business instead of focusing only on price changes. Earnings will be hit, and it's hard to know if this crisis will be better or worse than others. But it will come back.

Agree. If we look at the S&P during recessions since the 1940's, time + patience is required of investors for the most part.

I posted this on another thread in response to that table, posted by you or someone else I don't recall. It's a forward looking view, the current term structure of the S&P 500 quarterly dividend futures. First link is an easy to read graph from Seeking Alpha from around 10 days ago, second link is current prices on those futures from CME's site, basically similar
https://seekingalpha.com/article/433403 ... -s-economy
https://www.cmegroup.com/trading/equity ... index.html

Right now the market foresees a much larger drop in dividends by 2021 than in most previous stock downturns or recessions, about a 50% drop between 2020 Q1 and 2021 Q2 based on the Jun 2021 dividend futures price.

Yes, I saw your previous response. No doubt this episodic event will be measured, in retrospect, as a short term severe earnings and dividend recession for the S&P 5000 before bouncing back - whether or not the futures you point out end up being correct or near correct. How valid of a track record do the quarterly dividend futures in non-episodic markets have?

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

In the long enough run we're all dead. And in between then and say several years from now it's probably fairly likely the dividend yield goes back to something like what it's been (what the level of index will be obviously nobody knows, but dividend/index ratio probably reasonable to expect will tend toward the mean). However in many past recession/market downturns the absolute level of dividends didn't change much, and the dividend yield went up considerably during the recession/down turn. The market now seems to expect a sharp drop in the dividend yield, assuming an index level in the ballpark of where it is now, for awhile anyway. That's all I'm pointing out.

[SimpleGift]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on.

Interesting! I didn't know that something like S&P 500 Quarterly Dividend futures actually existed. If I am reading the chart that you linked to correctly (copied below), it looks like investors with real "skin in the game" are predicting a nearly 45% drop in S&P 500 quarterly dividends by December of 2020:

• 
  Source: CME Group

As with any evolving crisis, there's bound to be a large degree of uncertainty around these projections. But what's significant for income investors, as we've learned in other deep earnings recessions, is that it can sometimes take 3 or 4 years for S&P 500 dividend payouts to fully regain their former inflation-adjusted levels.

[CyclingDuo]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

In the long enough run we're all dead. And in between then and say several years from now it's probably fairly likely the dividend yield goes back to something like what it's been (what the level of index will be obviously nobody knows, but dividend/index ratio probably reasonable to expect will tend toward the mean). However in many past recession/market downturns the absolute level of dividends didn't change much, and the dividend yield went up considerably during the recession/down turn. The market now seems to expect a sharp drop in the dividend yield, assuming an index level in the ballpark of where it is now, for awhile anyway. That's all I'm pointing out.

Not to worry, you are not alone in pointing that out. Goldman Sachs and other analysts are pointing out similar dividend declines (and adjusting them downward on what seems to be a weekly basis).

I am in agreement that dividends will change for the shorter term with the episodic event (I am willing to call the shorter term 1-2 years), but remain more focused on 5-6 years from now and beyond - at which point income from our dividends could start to be tapped if need be. Since we are still in the accumulation years and not retired yet, deploying capital from the income earned from our human capital remains the strategy on a weekly basis, month after month, year in and year out through thick and thin.

Turning a former commercial real estate investment into other investments had me - a week ago last Monday - utilize the first leg of turning a portion of that capital into stocks that were on my shopping list for the much longer haul. They are a part of my DIY index fund that is a portion of our overall portfolio (the rest is in index funds). Even if it wasn't peak pessimism or the best capitulation moment to enter, or the best DCF fundamental point to enter - I made the move with the eye on the longer term. I am prepared for other leg in opportunities over the coming months to use that former commercial real estate capital if things get more dire. Things will start to settle out over the coming months and especially over the next 18-36 months for the long term investor.

CyclingDuo

[Sandtrap]

Oustanding thread and information.
OP: thanks for posting this!

Certainly a "heads up" for the prior threads on "Dividend High Yield Funds".

j

[CyclingDuo]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

Dividend Futures have turned around since your post(s).

Morgan Stanley believes that implied 15% haircut in S&P 500 dividends “may overstate the likely dividend cuts this year.” “Dividend futures have already bottomed and rebounded sharply....” according to the note.

Is Fear Stemming From Dividend Cuts Overblown?

https://www.yahoo.com/finance/news/fear ... 12104.html

Net-net, I've had more dividend increases this year to date than suspensions or cuts in my holdings. Nevertheless, dividend suspension and or cut watch is in full swing.

https://www.dripinvesting.org/tools/tools.asp

Eventually, what we are going through will be added to this list. Time will tell what the overall impact was during this recession/bear market.

[JackoC]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

Dividend Futures have turned around since your post(s).

Ha, the market has changed in a few weeks so the original point was wrong? I believe the level of the S&P was also very different some weeks ago. I would still stay the dividend futures are a better place to look for what to expect on dividend cuts than a basically irrelevant list of dividend cuts in past, pretty different than this one, recessions.

[CyclingDuo]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

Dividend Futures have turned around since your post(s).

Ha, the market has changed in a few weeks so the original point was wrong? I believe the level of the S&P was also very different some weeks ago. I would still stay the dividend futures are a better place to look for what to expect on dividend cuts than a basically irrelevant list of dividend cuts in past, pretty different than this one, recessions.

The narrative changes for each recession/bear market, and this one is unique. However, the outcome will most likely be within a range that fits well within historical tables and charts. I felt the end of March provided some ample opportunity for the longer term in our investments in spite of how the dividend future markets for the shorter term were trading.

https://www.simplysafedividends.com/int ... ar-markets

[JackoC]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

Dividend Futures have turned around since your post(s).

Ha, the market has changed in a few weeks so the original point was wrong? I believe the level of the S&P was also very different some weeks ago. I would still stay the dividend futures are a better place to look for what to expect on dividend cuts than a basically irrelevant list of dividend cuts in past, pretty different than this one, recessions.

The narrative changes for each recession/bear market, and this one is unique.
1. However, the outcome will most likely be within a range that fits well within historical tables and charts.
2. I felt the end of March provided some ample opportunity for the longer term in our investments in spite of how the dividend future markets for the shorter term were trading.

1. You know this likelihood how?
2. You are confusing two different things there. You're saying you successfully predicted *the total return of the S&P would be favorable* from the end of March. Perhaps, but you must know such prediction have no more than a random chance of being correct, if you can do consistently better you should be trading for a living. The dividend futures going up or down doesn't say anything directly about the market's expectation of total return, since dividends don't directly matter for total return, and total return is all that really matters. Projecting dividends is only really relevant to secondary issues like cash management and tax (for example my income might this year fall below certain thresholds that make it more advantageous to liquidate some appreciated stock assets). But what people are willing to bet now for near term futures is the way to estimate this at a given time not charts of past results, or just wait and see. The future estimate is unstable, because the outcome is. There is no actual pseudo certainty of 'will most likely fall in the past range'.

[Schlabba]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

Dividend Futures have turned around since your post(s).

Ha, the market has changed in a few weeks so the original point was wrong? I believe the level of the S&P was also very different some weeks ago. I would still stay the dividend futures are a better place to look for what to expect on dividend cuts than a basically irrelevant list of dividend cuts in past, pretty different than this one, recessions.

The narrative changes for each recession/bear market, and this one is unique.
1. However, the outcome will most likely be within a range that fits well within historical tables and charts.
2. I felt the end of March provided some ample opportunity for the longer term in our investments in spite of how the dividend future markets for the shorter term were trading.

1. You know this likelihood how?
2. You are confusing two different things there. You're saying you successfully predicted *the total return of the S&P would be favorable* from the end of March. Perhaps, but you must know such prediction have no more than a random chance of being correct, if you can do consistently better you should be trading for a living. The dividend futures going up or down doesn't say anything directly about the market's expectation of total return, since dividends don't directly matter for total return, and total return is all that really matters. Projecting dividends is only really relevant to secondary issues like cash management and tax (for example my income might this year fall below certain thresholds that make it more advantageous to liquidate some appreciated stock assets). But what people are willing to bet now for near term futures is the way to estimate this at a given time not charts of past results, or just wait and see. The future estimate is unstable, because the outcome is. There is no actual pseudo certainty of 'will most likely fall in the past range'.

Volatility of returns matters. If you own a high yield index with dividends which are less volatile than share prices, you might end up selling less bonds to cover your cost during a down market, hence your portfolio lasts longer.

[CyclingDuo]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

Dividend Futures have turned around since your post(s).

Ha, the market has changed in a few weeks so the original point was wrong? I believe the level of the S&P was also very different some weeks ago. I would still stay the dividend futures are a better place to look for what to expect on dividend cuts than a basically irrelevant list of dividend cuts in past, pretty different than this one, recessions.

The narrative changes for each recession/bear market, and this one is unique.
1. However, the outcome will most likely be within a range that fits well within historical tables and charts.
2. I felt the end of March provided some ample opportunity for the longer term in our investments in spite of how the dividend future markets for the shorter term were trading.

1. You know this likelihood how?
2. You are confusing two different things there. You're saying you successfully predicted *the total return of the S&P would be favorable* from the end of March. Perhaps, but you must know such prediction have no more than a random chance of being correct, if you can do consistently better you should be trading for a living. The dividend futures going up or down doesn't say anything directly about the market's expectation of total return, since dividends don't directly matter for total return, and total return is all that really matters. Projecting dividends is only really relevant to secondary issues like cash management and tax (for example my income might this year fall below certain thresholds that make it more advantageous to liquidate some appreciated stock assets). But what people are willing to bet now for near term futures is the way to estimate this at a given time not charts of past results, or just wait and see. The future estimate is unstable, because the outcome is. There is no actual pseudo certainty of 'will most likely fall in the past range'.

May cuts are all listed now...

https://seekingalpha.com/article/435193 ... n-may-2020

[CyclingDuo]

Like any other market indicator, those are the 2021 future dividend levels investors are willing to put real money on. Who would be the idiots transacting the futures for 2021 at steep discounts to recent dividends if that was an obviously wrong estimate? Seems to me it's something to at least consider rather than ignore, as I guess you did in fact last time I mentioned it.

Dividend Futures have turned around since your post(s).

Ha, the market has changed in a few weeks so the original point was wrong? I believe the level of the S&P was also very different some weeks ago. I would still stay the dividend futures are a better place to look for what to expect on dividend cuts than a basically irrelevant list of dividend cuts in past, pretty different than this one, recessions.

The narrative changes for each recession/bear market, and this one is unique.
1. However, the outcome will most likely be within a range that fits well within historical tables and charts.
2. I felt the end of March provided some ample opportunity for the longer term in our investments in spite of how the dividend future markets for the shorter term were trading.

1. You know this likelihood how?
2. You are confusing two different things there. You're saying you successfully predicted *the total return of the S&P would be favorable* from the end of March. Perhaps, but you must know such prediction have no more than a random chance of being correct, if you can do consistently better you should be trading for a living. The dividend futures going up or down doesn't say anything directly about the market's expectation of total return, since dividends don't directly matter for total return, and total return is all that really matters. Projecting dividends is only really relevant to secondary issues like cash management and tax (for example my income might this year fall below certain thresholds that make it more advantageous to liquidate some appreciated stock assets). But what people are willing to bet now for near term futures is the way to estimate this at a given time not charts of past results, or just wait and see. The future estimate is unstable, because the outcome is. There is no actual pseudo certainty of 'will most likely fall in the past range'.

Update to JackoC:

Total return of the S&P 500 would thus far have to be deemed favorable and has been on target 12 months and 2 weeks later from deployment - at least based on our prior discussion.

Turning a former commercial real estate investment into other investments had me - a week ago last Monday (3/23/20) - utilize the first leg of turning a portion of that capital into stocks that were on my shopping list for the much longer haul.

Bonus for us due to an approved step up in cost basis on the former commercial property (due to inheritance and the required legwork to figure out the step up in basis and redo the K-1) means we owe no taxes on the property sale:

Deploying that first leg of former real estate capital on March 23rd, 2020 based on #'s 1 & 2 above have remained on target (as well as subsequent leg additions)...



CyclingDuo