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December 21, 2016

What do investors reasonably expect to be the future of the S&P 500's dividends in 2017?

One way to answer that question is to use the Chicago Board of Exchange's Implied Forward Dividends futures contracts, whose indicated prices represent the amount of dividends expected to be paid out by S&P 500 companies after being weighted according to their market capitalization and then multiplied by a factor of 10.

In the following chart, we've done the math of dividing the indicated prices of the CBOE's dividend futures contracts by 10 to get back to the expected amount of cash dividends per share for the S&P 500 index for each future quarter of 2017 as those futures suggest as of 20 December 2016. As a bonus, the chart also shows what the expected future for the S&P 500's dividends looked like a year ago when 2016 was still entirely in the future.

The Expected Future For Dividends in the S&P 500, 2016 vs 2017

Here are some important things to know about the CBOE's dividend futures:

  1. The CBOE's implied forward dividends are different from the official dividends per share that Standard and Poor will report for its S&P 500 index.
  2. The main difference between them is that they cover different periods of time. S&P reports dividends paid over a calendar quarter, where say Q1 would run from 1 January 2017 to 31 March 2017, and so on. The CBOE's dividend futures cover the period beginning after the third Friday of the month preceding the indicated calendar quarter through the third Friday of the month ending the indicated quarter, where the data for Q1 in 2017 would cover the period from 17 December 2016 through 17 March 2017.
  3. Because of the timing of when dividends are paid out, there can be big differences between the CBOE's indicated future dividends and the actual dividends S&P reports - this is especially true for Q4 and Q1, where companies paying out dividends before the end of the calendar year (in Q4) will have their dividends indicated as being paid in Q1 in the CBOE's data.
  4. The CBOE's dividend futures contracts are traded instruments, which can be pretty thinly traded from time to time, where they will periodically show pricing anomalies. Historically, these anomalies have tended to last for no more than a week, but some have run several days longer.
  5. The S&P 500's dividends do give an indication of the relative health of the U.S. economy. Dividend futures are hinting at what investors expect for the U.S. economy as they look ahead in time today.

Looking forward into 2017, the key thing to note is that the dividend futures data indicates a decline in cash dividend payouts from the first through the third quarter of the upcoming year, which is something that was not present in the data that looked forward into 2016 from a year ago. Future dividends are projected to rebound strongly in the fourth quarter of 2017, but that is as far into the future as we can see from our current vantage point in 2016.

What lies beyond that distant future horizon is, as yet, unknown. We won't be able to begin seeing into 2018 until after the dividend futures for 2017-Q1 have run out on the third Friday of March 2017.

Data Sources

EODData. Implied Forward Dividends March (DVMR). [Online Database]. Accessed 21-Dec-2016.

EODData. Implied Forward Dividends June (DVJN). [Online Database]. Accessed 21-Dec-2016.

EODData. Implied Forward Dividends September (DVST). [Online Database]. Accessed 21-Dec-2016.

EODData. Implied Forward Dividends December (DVDE). [Online Database]. Accessed 21-Dec-2016.

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