May 21, 2020
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).
To read the article and complete the CPD quiz, click here.