Goldman Sachs: US stocks face sell-offs, dividend futures have hedging appeal

Goldman Sachs analysts said in a report last Friday that in the midst of recent sell-offs in the US stock market, dividend futures are an attractive investment opportunity for investors who can withstand risks such as insufficient liquidity and volatility. Goldman Sachs analyst David Kostin said in a report on March 7th: "Although the S&P 500 index has fallen 6% from its high in February, pricing for 2026 dividend futures growth remains stable at 1%. Unlike the stock market, dividends have not reflected post-election prosperity and have shown significant resilience in market volatility." Dividend futures are derivative contracts traded on exchanges that allow investors to establish positions on future dividend payments. Dividend futures can be based on a single company, a basket of companies, or a stock index. The report by Goldman Sachs stated, "Investors holding dividend futures contracts will ultimately receive a dividend based on the level of realized dividends per share. While liquidity for longer-term contracts may diminish, investors will reap rewards as futures market pricing approaches our fundamental forecasts." Economic Outlook After President Trump won the election, the US stock market surged, but this optimism has now given way to concerns that Trump's tariff policies will drag down the economy. The report stated that with the sell-offs seen since last month, the stock market's pricing of economic growth is more in line with Goldman Sachs economists' forecasts. These economists recently lowered their expectation for US GDP growth in the fourth quarter of 2025 from 2.2% to 1.7%. This downgrade led to a decrease in the average annual growth forecast for the US in 2025 from 2.3% to 2.0%. The bank said, "This brings downside risks to our current forecast of 9% earnings per share growth for the S&P 500 index, but only moderate risk to our forecast of 6% dividend growth. The limited historical decline in S&P 500 index dividends is another reason supporting investment in S&P 500 index dividends." Resilient Dividends The report stated that in past economic recessions, dividends typically dropped 1%, while earnings per share dropped 11%, and stock prices fell 24%. The financial crisis in 2008 was an exception, with dividends crashing 24%, mainly due to a 74% decrease in dividends from financial services companies. Excluding financial sector stocks, dividends only dropped 6%. Goldman analysts project that by 2025, the annual dividend growth rate for S&P 500 index components will reach 6%, in line with a 30% payout ratio and an $80 per share dividend rate. The dividend payout ratio has ranked in the 22nd percentile since 1990. Goldman stated that regulatory reforms by the Trump administration could lead to financial services companies paying higher dividends than currently expected, a key upside possibility that analysts have not yet incorporated into their forecasts. The Federal Reserve's annual Comprehensive Capital Analysis and Review (CCAR) for the largest bank holding companies in the US, commonly known as stress tests, could affect dividend payouts in the financial sector. Goldman said, "Last year, most banks that participated in the 2024 CCAR test subsequently announced dividend increases. This year's test results may be announced in June." One of the biggest risks to the outlook for dividends in 2025 is an economic slowdown. Goldman stated, "Policy uncertainty arising from tariffs has increased, putting pressure on business and consumer confidence, and economic surprises have recently turned negative. Increased uncertainty, even as fundamentals remain resilient, may limit management's willingness to significantly increase dividends." Goldman listed the biggest contributors to S&P 500 index dividends per share in 2025: