1. Where does your team sit within S&P Global?
The Dividend Forecasting team sits in the Data, Valuations & Risk Analytics business group, which is part of S&P Global’s Market Intelligence division.
2. Can you please tell us about the services you provide and the types of clients you serve?
Our Dividend Forecasting service provides unique proprietary data to help financial institutions to price derivatives and make investment decisions. We do this by delivering precise forecasts of the size and timing of dividend payments, based on fundamental analysis, advanced analytics and the latest market news.
Our customers include global investment banks who we have partnered with for many years, derivatives exchanges that utilize our forecasts in their end-of-day pricing models and, increasingly, multi-strategy hedge funds and asset managers who value our accuracy and in-depth research.
3. How can your dividend forecasts be used in indices?
Our Dividend Forecasting data can be used to enhance dividend indices and potentially improve performance for market participants. Selecting stocks based on our future dividend expectations, rather than just historical payout records, enables market participants to track companies with favorable dividend prospects based on our fundamental analysis and helps them avoid yield traps. The methodology used by the S&P 500 High Dividend Growth Index integrates predicted yield growth rates to provide a blend of both current yield and future dividend growth. This approach has been effective in the changing U.S. dividend landscape.
4. Would you please provide an overview of your team’s dividend forecasting process?
We have developed a robust forecasting framework based on bottom-up, fundamental analysis. Financial statement and ratio analysis forms a core part of the methodology. We combine this with an understanding of individual company dividend policies, historical patterns and industry trends to determine our estimate. The team monitors company news on a daily basis to stay informed and assess the impact of market events, updating forecasts promptly when assumptions change. We also actively incorporate top-down drivers such as economic sentiment as well as regulator and exchange guidance, something that was especially important during the pandemic and in certain markets. We forecast dividend dates as well as rates, and these are produced by analyzing historical patterns and reviewing corporate financial calendars.
5. What are the key inputs that go into the forecasts? Please discuss how companies are assessed through both a qualitative and quantitative framework.
We combine a variety of company, instrument, market and economic data from across S&P Global’s extensive data estate. Our core fundamental inputs include S&P Capital IQ Financials and Estimates, and we have recently added Visible Alpha Estimates to our framework. This deep consensus data provides our analysts with a quick understanding of the sell-side view of a company or industry at a high level of granularity. At the instrument level, we use our internal sources of derivatives data to monitor implied dividend levels as well as exchange-quoted dividend futures prices. We also incorporate macro data where relevant, such as economic and industry estimates, and benefit from a close relationship with the S&P Global PMI group.
There is also a qualitative aspect to predicting dividends, as they reflect a board’s willingness to pay dividends. An increase in dividends is often viewed as an indicator of future prospects, which may indicate confidence and provide evidence that the board is committed to its capital allocation discipline. Some studies suggest that firms that pay dividends may outperform the general market over time.
