HOW-TO Discover and Harness the Potential of the Dividend MarketDividend Market as well as Dividend futures trading shines bright, in accordance with CME Group @CME_Group Q3'23 Equity Insights Report. Dividend futures combined Q3 ADV reached 5.1K contracts, and OI averaged 284K contracts (+5% vs. Q2 2023).
Over 77K contracts have traded since the launch of Annual Dividend Index futures on Nasdaq-100 NASDAQ:NDX and Russell 2000 TVC:RUT , which allow market participants increased options to manage U.S. dividend risk, especially as year end approaches.
Understanding Dividends and Dividend Market
👉 A dividend is the distribution of corporate earnings to eligible shareholders.
👉 Dividend payments and amounts are determined by a company's board of directors. Dividends must be approved by the shareholders by voting rights. Although cash dividends are common, dividends can also be issued as shares of stock.
👉 The dividend yield is the dividend per share, and expressed as a percentage of a company's share price.
👉 Many companies - constituents of S&P500 Index DO NOT PAY dividends and instead retain earnings to be invested back into the company.
👉 The S&P500 Dividend Points Index (Annual) tracks the total dividends from the constituents of the S&P 500 Index. The index provides investors the opportunity to hedge or take a view on dividends for U.S. stocks, independent of price movement. The index resets to zero on an annual basis.
👉 Using the S&P500 Dividend Point Index (Annual) as the underlying in financial products, investors can hedge or gain exposure to the dividend performance of the S&P500 Index.
Representation of S&P500 Dividend Points Index (Annual) over the past 5 years.
Dividends points are to be collected through the calendar year, and reset to Zero on an annual basis
Understanding S&P500 Annual Dividend Index Futures
👉 The S&P500 Annual Dividend Index futures CME:SDA1! calculates the accumulation of all ordinary gross dividends paid on the S&P500 index constituent stocks that have gone ex-dividend over a 12-month period. The amounts are expressed as dividend index points.
👉 The underlying index for S&P500 Annual Dividend Index futures is the S&P500 Dividend Index. The methodology for the index can be found here at S&P Global website.
👉 Dividend index points specifically refer to the level of index points that are directly attributable to the dividends of index constituents. They typically only capture regular dividends and calculate this on the ex-date of the respective constituents within each index.
👉 In general, “special” or “extraordinary” dividends are not included as dividend points in the respective annual dividend indices.
👉 Futures contract Unit is $ 250 x S&P 500 Annual Dividends Index.
The Universe of S&P500 Annual Dividend Index futures with expirations dates over the next several years
Understanding the Difference between 'Today' and 'Tomorrow' using S&P500 Annual Dividend Index Futures, or what is CME:SDA1! and CME:SDA2! Futures contracts
👉 CME:SDA1! is a Front S&P500 Annual Dividend Index futures contracts, that calculates expected dividend index points for current (in this time - 2023) calendar year.
👉 CME:SDA2! is a Next one S&P500 Annual Dividend Index futures contracts, that calculates expected dividend index points for the next one (in this time - 2024) calendar year.
👉 The difference (futures spread) between front and next one can give an expression to traders and investors.
👉 Macro conditions are good, and U.S. economy is doing well, so futures spread values are below Zero (expected dividend points for next year are bigger rather current).
👉 Macro conditions are bad and U.S. economy is getting worst, so futures spread values are above Zero (expected dividend points for next year are lower rather current).
🤝 Happy Dividend Market Trading to Everyone! Enjoy!
