The rest of the time, there’s no apparent relationship between changes in dividends and stock prices, at least in the near term. The correlation between year-over-year changes in S&P 500 dividends and price, for example, was 0.06 from 1948 to 2019, which is to say no correlation at all. (A correlation of 1 implies that two variables move perfectly in the same direction, whereas a correlation of negative 1 implies that two variables move perfectly in the opposite direction.)
Of course, when it comes to individual stocks, all bets are off because any one company can struggle for years or fail altogether. But few investors are betting on one company, or even just a handful of them. More often, they assemble a broad basket of stocks or hand their money to stock funds, both of which more closely resemble broad-market gauges such as the S&P 500.
Still, when confronted with the market’s historical record, a common response is that this crisis isn’t comparable to previous ones — that the coronavirus isn’t merely a speed bump but a longer-lasting drag on the U.S. economy and businesses. That may prove to be true, but let’s be mindful that just a few months ago, the “this time is different” chorus was howling that U.S. companies had reached a new plateau of high profits that justified seemingly any stock price.
As we now know, it wasn’t different then and it’s probably not different now. There are many important things to worry about in the fight against coronavirus. Investors need not add dividends to that list.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.