Dividend Hits Keep Coming: Implied Dividends Predict The Tale

The implied dividends measure the options market view on how much companies will pay going forward. Embedded in options prices are a portion of forecast dividends traders think will be paid.

When the implied dividend falls to low levels, this behavior warns investors that the dividend level may fall.

Here's how the ORATS implied dividends watch looked last week:




Wynn Resorts (WYNN) had an annualized dividend of $4.00 but their implied dividend was zero. WYNN subsequently suspended payment of their dividend. MGM cut its June dividend to 0.0025.

Disney announced it won't pay a dividend for the first half of its current fiscal year.

Estee Lauder announced it would be suspending its dividend for the next quarter. The dividend would have been paid in June.

TJX very quietly suspended its dividend for the near future. They put the suspend information in their annual report filing buried pretty deeply.

Dick's Sporting Goods announced it would be temporarily suspending its dividend.

To preserve liquidity, CAKE has suspended its dividend and stopped buying back stock.

Here's what the ORATS implied dividend suspension watch file looks like now:




Many of these stocks could be next to cut.

Grainger (GWW) reported last Thursday and said it is suspending its financial guidance for the full year 2020 and pausing share repurchases given the uncertainties surrounding the ongoing coronavirus (COVID-19) pandemic. Is its dividend next?



https://blog.orats.com/risky-divide...-after-raising-it-in-march-others-will-follow

 

so it means the stock will go down?

 

Not always will the stock go down.
Kohl's KSS for example:

Why would Kohl's (KSS) slash its dividend after raising it just two months ago, and why would the stock go up on the same day as the announcement?

These are strange times and this is a strange case.

Here's why: Kohl's announced that is secured a $1.5 billion revolving line of credit with Wells Fargo and immediately drew down the entire amount. When it did that, it was forced to suspend the dividend because of covenants in the revolver.

Kohl's also announced a plan to reopen stores and said that some stores were already opened. KSS was up 7.5%.

Dividend shocks like this one can be especially painful to options holders because a high dividend like Kohl's pays has a large effect on the price of options. However, many options investors did not suffer from a surprise cut as the options market was expecting it.

 

on KSS, it cant be all bad, or can it?

ATM $17 CC expiring May 22 is paying ~$1.50 or net ~7% $1.25 after minus the $0.25

https://www.barchart.com/stocks/quotes/KSS/options?expiration=2020-05-22-w

stock at $17.25 - $1.50 option premium = $15.75 downside

rinse & repeat

 

So this report basically says, that the market doesn't expect a dividend nor does it expect the stock to move because of the dividend slash? Where is the Implied Move? Under normal Circumstances the Div slash should send a bad signal to the market, thus Call Options Premium should be priced lower, since the Put side would be heavier. But nowadays Investors get that politics will prevent companies from paying out dividends/attracting negative publicity. So it's not really seen as a bad signal is it? Would need to know what the Implied Move should be vs Is

 

Here's the rinse and repeat for the Kohl's covered call strategy:

 

1. So this report basically says, that the market doesn't expect a dividend > Correct.
2. nor does it expect the stock to move because of the dividend slash? > It does not make that statement.
3. Where is the Implied Move? > The implied move can be extracted from the relationship in the expirations but that is not the point of the report.
4. Under normal Circumstances the Div slash should send a bad signal to the market> Yes but since it is already expected by the market the effect is not as much as an unexpected cut.
5. thus Call Options Premium should be priced lower, since the Put side would be heavier. > I do not follow this. Put-call parity states that the premiums are similar.
6. But nowadays Investors get that politics will prevent companies from paying out dividends/attracting negative publicity. So it's not really seen as a bad signal is it? > In this environment it does not appear that the market is punishing stock prices after a cut.