About Dividend Forecasting
Introduction to Dividend Forecasting
The timing and amount of dividend payments made by over 30,000 listed companies globally in over 100 countries is forecast by buy side fund managers, private investors, sell side analysts, index structurers, sell side traders and market makers, and information and analytics providers that specialise in dividend forecasting.
Listed companies most often pay dividends annually, biannually, quarterly and may also pay ad hoc or special dividends, perhaps related to unusually high profitability or proceeds of a disposal.
Significance in Investment Decisions
For long term investors, dividends are often the most important driver of returns. Studies have shown that the compounding effect of reinvesting dividend income may account for the majority of returns in some equity markets. For pension funds, endowments, foundations and other investors that have spending obligations, dividends help to provide cashflows. For shorter term traders, particularly in futures and options, the timing of dividend payments is critical to accurately pricing derivatives.
Evolution of Forecasting Methods
Traditionally, dividends were forecast manually on a bottom up basis by specialist equity analysts focused on companies or sectors. They built models to forecast company revenues, profits and dividends, amongst other variables. Dividends can also be forecast on a more top down basis by macroeconomists taking a view on economic growth, aggregate corporate profits and payout ratios. The increasing power of computing and artificial intelligence applied to vast quantities of “Big Data” also allows for algorithms to systematically forecast dividends without human intervention. Hybrid approaches may combine algorithms and human discretion in varying proportions. There are special situations where human experience and judgment is needed to interpret how new data or events may impact dividends.
