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You can think what you want from analysts’ estimates. Their guesses and management’s outlook are the only numbers investors have about the future. The estimates can relate to both dividends and other important metrics such as earnings or cash flow per share.
The spotlight is on analyst estimates during the earnings season, when these become the yardstick for the reported earnings. It is often overlooked that the estimates are continuously adjusted and that the numbers circulating in the media are only average values of a varying number of analysts.
Video to analyst estimates
Especially for companies with increased uncertainty – often the most interesting companies – the estimates are continuously adjusted. In 2018, the US company L Brands achieved a dividend yield of 8%. Investors wondered whether the dividend of USD 2.40 could be maintained, which depended largely on future earnings per share.
At the beginning of February 2018, analysts still estimated earnings per share at USD 3.45 for fiscal 2019. The dividend seemed secure. Then the estimates were revised downwards month by month. Particularly in the course of the quarterly results, the estimates were revised downwards in a range between 8% to 10%. In December 2018, the estimates had fallen from USD 3.45 to USD 2.33.
Although estimates should be treated with caution, they are useful. Especially in the case of dividends, the estimates are more accurate in indicating cuts, which relates to the fact that the company’s management can determine the amount of dividends itself to a certain extent. Accordingly, management can also decide to cut dividends in advance. As soon as this is announced, analysts reflect the lower dividend in their estimates making the dividend cut easily available for the public on many financial platforms.
Admittedly, in this case the analysts’ own contribution is modest. But the benefit for the dividend investor is all the greater – he has been warned.
Interim Conclusion
Despite their uncertainty, estimates are helpful to better assess the security of the dividend. DividendStocks.Cash displays estimates for profits, cash flows, dividends, revenues and margins for the next business years and is updated regularly.
