Rabu, 21 Maret 2012

The Effect of Apple's Dividend Announcement on the Future

Apple Computer Logo - Source: ddp.nist.govOne day later, and we're still blown away by the effect of Apple's dividend announcement upon stock prices.

Here's why. This is the only time we've ever observed stock prices leading a change in expected future dividend payments since we began regularly tracking dividend futures in December 2008!

Most often, we either see changes in the expected future for dividends lead changes in stock prices, or alternatively, stock prices reacting to the effect of noise events that are of limited duration - with the most significant one being the reaction of stock prices to the Federal Reserve's first quantitative easing program.

But this marks the first time in the years we've been watching dividend futures that the metaphorical cart actually led the horse!

To mark the occasion, we've animated the "before" and "after" view of the future for both stock prices and dividends per share for the S&P 500 as it relates to Apple's 19 March 2012 dividend announcement. (Click the links above for larger, clearer versions of the image frames.)

Before and After Effect of 19 Marc 2012 Apple Dividend Announcement Upon S&P 500 Dividend Futures

Here, we can see why investors would seem to have been focused on the expected dividend futures connected to the third quarter of 2012 in setting stock prices - with Apple's first dividend since 1995 to be paid out in July 2012, that event falls in the period covered by the dividend futures contracts for 2012-Q3.

In the absence of noise, the change in the expected growth rate of stock prices will closely pace the signal given by the change in the expected growth rate of dividends per share. In the "before" frame of the animated chart, we see that the average of stock prices recorded throughout March 2012 to date would seem to be inflated above that value.

But in the "after" frame of the animated chart, we can see that it is really closing in on where the S&P 500's expected change in the growth rate of dividends per share for the third quarter of 2012 would put them.

To put that another way, investors are setting stock prices "rationally"!

The Dark Cloud on the Horizon?

Here's another view of the change in expected future dividends per share:

Expected Future Trailing Year Dividends per Share, as of 20 March 2012

Do note the comment on the right half side of the chart. We've just witnessed Item #1 with Apple's announcement. With this change now behind us, Item #2 now becomes the likely driver of major changes in stock prices.

The only questions left are "which future will investors select?" and "when will they select it?" Our animated chart shows two possibilities for "which future", but doesn't have anything to say about the answer to the second question....

Yes, we already know which future, and also have a pretty good idea of when, but we no longer publicly offer such predictions....

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