Ironman at Political Calculation has updated his commentary and charts today showing the trend in dividend cuts, as it relates to the probability of recessionary conditions. (It is a great, quick read and can be found here.) Essentially, his analysis shows that the likelihood of recessionary conditions increase when the monthly number of dividends cuts rise above a certain threshold. The results of the analysis jives well with what I am seeing for increased recession risks- detailed here and here.
Well, I thought it would be illustrative to expand on this research and look out over a greater time frame, here 20 years. Using the companies currently in the S&P 1500- and yes, I understand this exposes the analysis to a survivor bias, but I am not about to reconstitute the S&P 1500 going back for 20 years- I calculate the rolling 3-month summation of companies cutting dividends monthly. The chart below shows the rolling 3-month summation of dividend cuts for the companies in the S&P 1500 and compares it with year-over-year percentage change in GDP.
The results here are confirm Political Calculation's initial supposition. It appears that when the summation of dividend cuts rise above 50, so does the probability of a recession. This model suggested recessionary conditions were occurring in the early part of the last decade and were spot on as a tell for the great recession. Time will only tell if the current rise above 50 is telling us that we are in recessionary conditions are something else entirely.
Well, I thought it would be illustrative to expand on this research and look out over a greater time frame, here 20 years. Using the companies currently in the S&P 1500- and yes, I understand this exposes the analysis to a survivor bias, but I am not about to reconstitute the S&P 1500 going back for 20 years- I calculate the rolling 3-month summation of companies cutting dividends monthly. The chart below shows the rolling 3-month summation of dividend cuts for the companies in the S&P 1500 and compares it with year-over-year percentage change in GDP.
The results here are confirm Political Calculation's initial supposition. It appears that when the summation of dividend cuts rise above 50, so does the probability of a recession. This model suggested recessionary conditions were occurring in the early part of the last decade and were spot on as a tell for the great recession. Time will only tell if the current rise above 50 is telling us that we are in recessionary conditions are something else entirely.
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