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CAPITAL MARKETS

Coronavirus: Dividend futures – the Nostradamus trade

Dividend futures in Europe indicated weakness well before suspensions of payouts to shareholders began. What explains this apparent predictive ability?

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Most European banks have indicated thatthey will suspend dividend payments after the Bank of England followed the European Central Bank in discouraging payouts to shareholders while the coronavirus crisis rages.

The list of non-bank companies suspending their dividends is also growing, with Goldman Sachs predicting a 25% fall in payouts by S&P 500 index members this year – a forecast that balances payments already made with a 38% fall for the last nine months of 2020.

Other analysts expect a fall in dividend payments from European companies that may be close to a decline in earnings of around 50%.

Global dividend payments rose by 3.5% last year to a record total of the equivalent of $1.43 trillion, according to a study released by Janus Henderson in February, which noted that underlying growth compared with 2018 was 5.4% before allowing for the effect of strength in the US dollar.