CyclingDuo wrote: ↑Mon Mar 30, 2020 9:03 am
Ben Mathew wrote: ↑Sun Mar 29, 2020 5:29 pm
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.