Paying for dividends

The equity derivatives dealing community is perennially long dividend risk, which proved profitable when dividends were on the rise, but with the prospect of large-scale dividend cuts looming, managing dividend risk has suddenly become pressing. By John Ferry

Company earnings have been in rude health since the bursting of the dotcom bubble in the early part of this decade. Stock prices have climbed virtually non-stop, in some cases hitting all-time highs, while equity investors have been rewarded with bulky dividend payouts. Since August, however, the outlook has been a lot gloomier. The crisis that began in the US subprime mortgage market has spread throughout the economy, with the country teetering on the brink of a recession. Stock prices have