Investors should buy 'dividend futures,' Goldman Sachs says

MW Investors should buy 'dividend futures,' Goldman Sachs says

By Louis Goss

Investors should add dividend futures to their portfolios to take advantage of low prices in the market, Goldman Sachs analysts are saying.

Dividend futures are exchange-traded contracts that let investors take positions on future dividend payments without investing in stocks directly.

The analysts explained that dividend rates currently priced into futures contracts are well below the rates expected by the firm's analysts.

"While the dividend futures market pricing of 2025 DPS growth has increased from 0% one month ago to +2% today, it remains 5% below our top-down DPS forecast," the Goldman analysts said.

Goldman's analysts, led by David Kostin, noted the market for dividend futures lacks liquidity, meaning prices often have weak correlations with the real-world macro environment.

Longer-term dividend-futures contracts are even more illiquid than short-term ones, meaning they are often even more misaligned.

"Contracts through 2034 currently price just +1% annualized DPS growth, below our forecast of +5%," the Goldman Sachs analysts said.

The Goldman analysts explained that dividend-futures contracts "ultimately pay out" based on realized dividends per share, even if prices are volatile along the way.

"Investors who can tolerate that volatility should be rewarded as futures market pricing converges towards our fundamental forecasts," the analysts said.

-Louis Goss

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October 21, 2024 06:52 ET (10:52 GMT)

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