In our latest CPD-accredited article, Epoch’s executive chairman and co-CIO Bill Priest shares his views on the outlook for dividends in a world of yield starvation.

Over the long-term, US EPS and DPS (dividends per share) are tied at the hip (they’ve been 97% correlated since 1871), but during recessions, dividends typically decline by only one-third as much as earnings. We expect this recession to be a bit different, with dividends falling by around 25%; that is, roughly one-to-one with earnings.

The consensus sees a small rebound in 2021, with dividend growth averaging 3% to 5% for the remainder of the decade (in line with earnings). This suggests  a somewhat slower recovery than is historically the norm. In previous recessions, dividends normally took 6 to 8 quarters to recover from the trough to the prior high. This time around 12 to 16 quarters strikes us as a more reasonable assumption, reflecting the swoosh-shaped recovery we foresee in earnings. Regardless, since at least 1980, dividend yields have increased during every downturn (Figure 1).

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