It took nearly a month after we first pointed it out, but someone has taken advantage of a unique investment opportunity that we identified with the options for the S&P 500’s quarterly dividend futures!
And because they did, we now have a better and more up-to-date picture of how much S&P 500 companies are expected to collectively pay out in dividends to investors in 2018-Q2, where in this case, we can now show how much the expectations for dividends to be paid out in this upcoming quarter have changed thanks to a combination of improved organic corporate earnings and, perhaps more significantly, the effect of the permanent corporate income tax cuts passed in late December 2017.
The sudden change in the CME Group’s S&P 500 quarterly dividend futures came on 5 March 2017, which vaulted slightly ahead of the bottoms-up dividends per share estimate indicated by IndexArb, which is how we were able to identify that a trading opportunity existed in the first place. In jumping from $12.70 per share to $13.20 per share, the CME Group’s dividend futures for the S&P 500 in 2018-Q2 are now communicating that investors stand to collect an additional 50 cents per share in that future quarter compared to what the dividend futures had been indicating since at least mid-December 2017.
We believe that this particular opportunity existed because the CME Group’s quarterly dividend futures for the S&P 500 have been trading on very thin volumes. Their annual quarterly divided futures for the S&P 500 see more action, where the mismatch between the S&P 500’s projected annual dividends per share for 2018 and the sum of their projected quarterly dividend futures for the S&P 500 for 2018 also confirmed the existence of the trading opportunity.
In terms of real money, the 50 cent per share increase in projected S&P 500 dividends means that investors will collectively rake in upwards of $4.47 billion more in dividends during the second quarter of 2018 than they were expecting prior to the passage of the Tax Cuts and Jobs Act of 2017. Altogether, the updated dividend futures project that S&P 500 companies would pay out over $118 billion in dividends during 2018-Q2. Or since we’re talking about dividend futures, over the period from the end of the third Friday of March 2018 through the end of the third Friday of June 2018. And there’s still lots of time between now and Friday, 15 June 2018 for dividends payouts in 2018-Q2 to change further.