31 Jan 2023


Evaluating dividends in an uncertain environment

Bloomberg and Eurex jointly hosted the "European Dividends Summit 2023"

At the joint event, industry experts such as Bloomberg’s Michael Maxwell, Marc Moehrle, Equity Portfolio Manager, Deutsche Asset Management, Akilesh Eswaran, Managing Director at the Royal Bank of Canada and Stuart Heath, Director, Equity & Index Product Design at Eurex presented and discussed the outlook for European dividends, hedging dividend exposure and extracting risk premise as well as product updates from Eurex. Also among the experts was Paul Beck, Executive Director, Equity & Index Sales, Eurex. We asked him about his views on the current market situation and his outlook for the new year.

“Dividends are a very interesting asset class and a good barometer for the overall economy.”

Akilesh Eswaran, Head of EMEA Equity Trading and Global Head of QIS, Royal Bank of Canada

Paul Beck
Paul Beck, Eurex

Paul, can you give us a brief overview of the dividend market situation as you see it?

The dividend market has continued to mature in recent years and has shown remarkable resilience given the challenges and market turbulence it has faced recently, particularly in 2020. One of the consequences of the Covid-related impact on dividends was the emergence of decrement indices, which are expected to reduce a structural source of hedging supply from structured product desks. This should make dividend markets less susceptible to volatility in the future.

How do you think the segment will develop, and what will be the main drivers?

Dividend derivatives had a record year at Eurex in 2022, with over 20 million contracts traded in all dividend index futures & options and single stock dividend futures combined. This represents a 20 percent growth compared to 2021, even surpassing the exceptional year of 2020. I expect dividend growth to slow this year, both in volumes and actual dividend levels, but we will likely continue to see strong sectors, particularly banks. We will also probably see more focus on sectors and individual stocks than on the overall index, which was driven by global macro flows last year.

“Structurally, we have some interesting parameters changing due to our high-rate environment.”

Marc Moehrle, Portfolio Manager – Multi Asset & Solutions, DWS

In your experience, what are the main reasons investors trade dividends derivatives, and has this changed over the last years?

The dividend market has evolved since its beginnings in the OTC market. There, only a limited number of banks and hedge funds traded with each other. The transfer of dividend derivatives to the listed and cleared environment allowed new market participants to enter the segment, reaching a much wider range of buy-side investors using different investment strategies. The attractiveness of buying long-term dividend futures, which are dividend futures that typically trade at a discount to expected dividends, remains attractive. However, investors can use more sophisticated investment strategies, for example, through the dividend options market. We now have three active dividend options market makers, and this area could continue to grow and attract new market participants.

“We are obviously trying to be as close as we can to our participants, finding out what is going on in the markets.”

Stuart Heath, Executive Director, Equity & Index Product Design, Eurex

What does Eurex have in the pipeline for 2023?

We launched bank dividend options last year, and this new product is just starting to establish itself in the market. We will likely expand the range of dividend products as needed, especially if we see activity in new products in the OTC space. At the beginning of the year, we also introduced a new feature that enables dividend strip trading and eases the operational burden for traders.

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