高盛 Dividends and Dividend Swaps

Dividend Focus " The Goldman Sachs Group, Inc. September 25, 2006 US Portfolio Strategy Turning cash into value Dividends and dividend swaps. S&P 500 dividends/share should rise 11% to $24.69 in 2006, 7% to $26.52 in 2007 and 8% annually through 2015. Dividend swaps allow investors to trade dividend views. (1) Buy 2008 dividend swap for 7% potential upside. (2) Buy 2015, sell 2010 contracts to reflect optimistic growth outlook. There is upside to dividend swap contracts beginning in 2008 $55.01 $50.77 $46.84 $43.20 $39.83 $36.72 $33.84$31.43 $28.72$26.52$24.69$22.22 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 20 05 20 06 E 20 07 E 20 08 E 20 09 E 20 10 E 20 11 E 20 12 E 20 13 E 20 14 E 20 15 E 20 16 E Di v id en ds ($/ sh ar e) Goldman Sachs estimateMarket-implied dividend level Source: Goldman Sachs. See the Disclosure section of this document for important disclosures about transactions in which The Goldman Sachs Group, Inc. or an affiliate is acting as financial advisor. Analysts employed by non-US affiliates are not required to take the NASD/NYSE analyst exam. Global Investment Research We expect dividend growth to exceed earnings growth beginning in 2009 Dividend growth increased following the 2003 change in tax rate supported by strong underlying earnings growth. Dividends grew 11%/year from 2002 to 2005. Growth will likely slow to 8%/year but remain above trend earnings growth (7%/year) as the payout ratio rises. Long-term dividends are driven by capacity to pay and propensity to pay The capacity to pay is determined by earnings growth and cash levels. The propensity to pay is a company-specific decision that is influenced by factors including federal tax policy. Trade #1: Buy the 2008 dividend swap contract for 7% expected return Our scenario analysis suggests downside risks are minimal. The implied level is below the worst-case scenario. There are limited trading opportunities for 2006-2007 index dividends. Trade #2: Buy the 2015 dividend swap and sell the 2010 contract The dividend term structure implies the compound annual growth rate declines after 2010. The market-implied 5-year compound annual dividend growth rate of 4.1% per year for 2010- 2015 is below our 8.5% estimate. The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of The Goldman Sachs Group, Inc. in the United States can receive independent, third- party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at http://www.independentresearch.gs.com or can call 1-866-727-7000 to request a copy of this research. For Reg AC certification, see page 30. For other important disclosures, see page 33, go to http://www.gs.com/research/hedge.html, or contact your investment representative. Portfolio Strategy United States Goldman Sachs Global Investment Research - September 25, 2006 Table of contents 1 Dividends and dividend swaps 2 Dividends should grow faster than earnings beginning in 2009 3 Swaps offer a way to trade the level and growth of dividends 4 Returning cash to shareholders will likely remain a priority 5 Capacity and propensity to pay drive dividend growth 6 Companies have a high capacity to pay dividends 8 The propensity to pay has not increased as much as expected 12 Buying opportunities exist in longer-term dividend swaps 19 2006-09 scenario analysis: Considering all dividend estimates 23 Appendix A: Introduction to index dividend swaps 25 Introduction to index dividend swaps 33 Disclosures The prices in this report are based on the market close of September 21, 2006. United States Portfolio Strategy Goldman Sachs Global Investment Research - September 25, 2006 1 Dividends and dividend swaps Dividends should grow faster than earnings starting in 2009 We estimate that S&P 500 dividends will increase 11% to $24.69 per share in 2006 and by 7% to $26.52 per share in 2007. Dividends grew at an 11% compound annual growth rate from 2002 to 2005. The recent trend represents a major increase over the prior ten years when dividends only grew at a 2% annual pace. We expect dividends will grow at a 8% annual rate from 2009 through 2015. Our long-term estimates are in-line with what our bottom-up estimates for both dividends and earnings for the next four years. The 8.5% dividend growth rate reflects S&P 500 trend earnings growth of 6.7% beginning in 2009, and a 50 basis point increase in the dividend payout ratio each year until the payout ratio equals 32.5%. Two drivers of long-term dividends: capacity to pay and propensity to pay The capacity to pay is determined mainly by macroeconomic factors (real GDP and earnings growth) but may be influenced by microeconomic factors that affect cash deployment such as current cash levels and working capital management. The propensity to pay is more a company-specific decision that may be influenced by factors including federal tax policy and investor demand. Alternative uses of cash include share repurchases and investing via capital expenditures or cash acquisitions. Swaps offer a way to trade both the level and growth rate of dividends S&P 500 dividend swaps enable investors to trade index dividend performance separately from price performance. An index dividend swap is a contract that enables investors to take a view on the future dividends to be paid on a stock index relative to the prevailing level implied by the market. For the S&P 500, dividends can be traded far into the future, enabling investors to trade views on long-term dividend growth. Trade Idea #1: Investors should buy 2008 dividend swap contract. Our scenario analysis suggests downside risks are minimal. There are limited trading opportunities for 2006-2007 index dividends. 2006-2007 market-implied dividend levels are in line with our bottom-up forecasts. Trade Idea #2: Buy the 2015 dividend swap and sell the 2010 contract. The dividend term structure implies that the compound annual growth rate declines after 2010. The market-implied 5-year compound annual dividend growth rate of 4.1% per year for 2010- 2015 is below our 8.5% estimate. Investors may implement this view with a steepening trade (sell a near-dated contract and buy a long-dated contract). We estimate 2006-2009 dividends on a bottom-up basis using Goldman Sachs estimates when available, and consensus estimates when they are not. After 2009, we use a top- down model to forecast dividend growth. A bottom-up perspective is appropriate for estimating near-term dividend levels. However, beyond four years the risks outweigh the benefits of using this model. Portfolio Strategy United States 2 Goldman Sachs Global Investment Research - September 25, 2006 Dividends should grow faster than earnings beginning in 2009 We estimate that dividends will increase 11% to $24.69 per share in 2006 and a further 7% to $26.52 per share in 2007 (See Exhibit 1). Dividend growth increased substantially following the 2003 change in tax rate supported by strong underlying earnings growth and cash flow beginning in 2004. Dividends grew at an 11% compound annual growth rate from 2002 to 2005. This is a major increase over the prior ten years, when dividends only grew at 2% annually. We expect dividends will grow at an annual rate of approximately 8% from 2009 through 2015. Our long-term top-down estimates are in line with what our bottom-up estimates for both dividends and earnings over the next four years. The 8.5% growth rate reflects S&P 500 trend earnings growth of 6.7% beginning in 2009, and a 50 basis point annual increase in the dividend payout ratio from 29.5% in 2009 to 32.5% in 2015. The payout ratio is currently 30.2%. Exhibit 1: We expect S&P 500 dividends per share will rise 11% in 2006 to $24.69 and grow at 8% from 2009-2016 12.38 12.58 13.18 13.79 14.90 15.49 16.20 16.69 16.27 15.74 16.07 17.38 19.44 22.22 26.52 28.72 31.43 33.84 36.72 39.83 43.20 46.84 50.77 55.01 24.69 $0 $10 $20 $30 $40 $50 $60 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 E 20 07 E 20 08 E 20 09 E 20 10 E 20 11 E 20 12 E 20 13 E 20 14 E 20 15 E 20 16 E Di v id en ds ($/ s ha re ) 4% (3%) (3%) 11% 7% 8% 8% 9% 8% 8% 8% 8% 8% 9% 2% 8% 12% 5% 8% 3% 14% (6%) (4%) (2%) 0% 2% 4% 6% 8% 10% 12% 14% 16% 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 E 20 07 E 20 08 E 20 09 E 20 10 E 20 11 E 20 12 E 20 13 E 20 14 E 20 15 E 20 16 E Di v id en ds (yo y % ch an ge ) Note: Dividends per share is estimated on a bottom-up basis through 2009. After that, we assume S&P 500 trend earnings growth of 6.7% and a 50 basis point annual increase in the dividend payout ratio each year until the payout ratio equals 32.5% in 2016. Dividends/share excludes special dividends Source: Compustat and Goldman Sachs Research estimates. United States Portfolio Strategy Goldman Sachs Global Investment Research - September 25, 2006 3 Swaps offer a way to trade the level and growth of dividends Investors should buy the 2008 dividend swap contract for 7% upside. 2006-2007 market-implied dividend levels are in line with our bottom-up forecasts. Exhibit 2: Currently, bottom-up forecasts suggest much more upside in longer-dated dividend swaps market implied levels as of September 25, 2006 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Best-case Scenario $25.10 $27.91 $30.99 $32.33 $35.57 $39.24 $43.24 $47.60 $52.36 $57.53 $63.16 Goldman Sachs estimates 24.69 26.52 28.72 31.43 33.84 36.72 39.83 43.20 46.84 50.77 55.01 Worst Case Scenario 24.23 25.43 27.15 29.96 31.97 34.11 36.39 38.83 41.43 44.21 47.17 Implied Dividend Swap Level 24.58 26.67 26.89 30.31 31.46 32.09 33.78 36.37 38.17 38.43 44.17 Upside / (Downside)(%) to Best Case Scenario 2.1 4.7 15.2 6.7 13.0 22.3 28.0 30.9 37.2 49.7 43.0 to Goldman Sachs 0.5 (0.6) 6.8 3.7 7.5 14.4 17.9 18.8 22.7 32.1 24.5 to Worst Case Scenario (1.4) (4.6) 1.0 (1.1) 1.6 6.3 7.7 6.8 8.6 15.0 6.8 20.00 25.00 30.00 35.00 40.00 45.00 50.00 55.00 60.00 65.00 70.00 Di v id en ds ($/ sh ar e) Goldman Sachs estimates Implied Dividend Swap Level Best-case Worst-case Source: I/B/E/S, Goldman Sachs Research estimates. Buy the 2015 dividend swap and sell the 2010 contract. The dividend term structure implies the compound annual growth rates declines after 2010. The market-implied 5- year compound annual dividend growth rate of 4.1% per year for 2010- 2015 is below our 8.5% estimate. One risk is that the steepening occurs after the 2010 contract settles. Exhibit 3: Currently, long-term growth is being priced at a discount market-implied levels as of September 25, 2006 2006- 2011 2007- 2012 2008- 2013 2009- 2014 2010- 2015 2011- 2016 Best-case Scenario 8.8% 9.2% 9.6% 9.8% 10.1% 10.0% Goldman Sachs estimates 8.8 8.4 8.5 8.6 8.5 8.5 Worst Case Scenario 8.1 7.8 7.5 7.0 6.7 6.7 Implied Dividend Swap Level 5.5 4.8 6.2 4.7 4.1 6.6 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% An n u al iz ed 5 - yr gr o w th (% ) Goldman Sachs estimates Implied Dividend Swap Level Best-case Worst-case Source: Goldman Sachs. Portfolio Strategy United States 4 Goldman Sachs Global Investment Research - September 25, 2006 Returning cash to shareholders will likely remain a priority Firms are likely to have wide flexibility to deploy cash given strong balance sheets and cash flow. We expect S&P 500 firms will generate approximately $1.1 trillion dollars in operating cash flow in 2006 and will wind down cash balances by $150 billion. Last year, for the first time ever, companies returned slightly more cash to shareholders (via buybacks and dividends) than they used to fund growth (capex and M&A). We believe this trend will continue in 2006, as companies return 51% of cash to investors and use 49% for growth: Exhibit 4: How companies are likely to spend $1.25 trillion in 2006 Cap-Ex $450 bn (36% of total) Acquisitions $165 bn (13%) Dividends $220 bn (18%) Buybacks $410 bn (33%) Invest for Growth Return to Shareholders 2006 USE OF CASH Source: Compustat and Goldman Sachs Research estimates. Companies will likely re-invest in their business 49% of total cash spent. Capital expenditures should account for 36% of spending. We estimate that cap-ex will increase 9% to $450 billion in 2006. Cash M&A should be 13% of spending; total M&A volume may reach $1.6 trillion. We estimate that cash M&A will increase 9% to $165 billion in 2006. Companies will likely return to shareholders 51% of total cash spent. Dividends should be 18% of spending. We estimate that dividends will increase 9% to $220 billion in 2006. Buybacks should account for 33% of spending. We estimate that cash spent on buybacks will increase 12% to $410 billion in 2006. Buyback announcements year-to- date already equal the record set in 2005. Exhibit 5: Companies will likely increase spending in 2006 AND return more cash to investors than invest for growth Use of cash: Invest for Growth (cap-ex+M&A) Return to Investors (buybacks+dividends) 65% 67% 61% 58%64% 60% 63% 63% 49% 50% 51% 49%51% 50% 35% 33% 39% 42%36% 40% 37% 37% 0 200 400 600 800 1000 1200 1400 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 2006E Ca sh So u rc es /U se s ($ bil lio ns ) Buybacks Dividends Cash acquisitions Capital Expenditures Operating Cash Flow Source: Compustat and Goldman Sachs Research estimates. United States Portfolio Strategy Goldman Sachs Global Investment Research - September 25, 2006 5 Capacity and propensity to pay drive dividend growth We expect dividends will grow at an annual rate of approximately 8% from 2009 through 2015. The 8.5% growth rate reflects S&P 500 trend earnings growth of 6.7% beginning in 2009, and a 50 basis point annual increase in the dividend payout ratio from 29.5% in 2009 until it reaches 32.5% in 2015. We expect the payout ratio will start to increase after a 60-year decline, driving above average long-term dividend growth (See Exhibit 6). Dividend growth is dependent on two main factors: the capacity to pay and the propensity to pay. The capacity to pay is determined mainly by macroeconomic factors (real GDP and earnings growth) but may be influenced by microeconomic factors that affect cash deployment such as current cash levels and working capital management. The propensity to pay, however, is more a company-specific decision that may be influenced by factors including federal tax policy and investor demand. Dividend growth has historically been positively correlated with earnings growth. Dividend growth has tended to slightly lag improving fundamentals, as management wants to “make sure” that the growth is not transitory. The correlation of 5-year compound growth rates is much higher than the correlation of the 1-year growth rates (0.73 vs. 0.56). The correlation of 5-year growth rates increases slightly to 0.75 when earnings growth is lagged by one period. While companies often wait to raise dividends, they are also loath to cut them. As a result, dividend growth tends to be much less volatile than earnings growth. The volatility of annual earnings growth has been 14.5% since 1943, while the volatility of annual dividend growth has only been 5.7%. Exhibit 6: Dividend growth should exceed earnings growth beginning in 2009 as earnings grow at trend rates. (10) (5) 0 5 10 15 20 25 30 19 43 19 46 19 49 19 52 19 55 19 58 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 20 03 20 06 20 09 20 12 20 15 20 18 A n n u a liz e d 5- yr gr o w th Earnings Dividends Earnings Growth Dividend Growth 1-yr 5-yr CAGR 1-yr 5-yr CAGR Average 8.0 6.7 6.1 5.6 Median 9.7 6.8 5.1 5.1 Volatility 14.5 5.6 5.7 3.4 Forecast Notes: Historical operating EPS growth is based on a Goldman Sachs proprietary series. Through 1986, we use reported EPS. Since then, we use operating EPS. Volatility is measured by the standard deviation of growth rates. Shaded bars indicate US recession, as defined by the NBER. Source: Standard & Poor’s, Compustat and Goldman Sachs Research estimates. Portfolio Strategy United States 6 Goldman Sachs Global Investment Research - September 25, 2006 Companies have a high capacity to pay dividends Strong sustained earnings growth should enable companies to increase their regular dividends going forward. On a bottom-up basis, S&P 500 earnings growth is expected to be 15% in 2006, 10% in 2007, and 9% in 2008. We expect growth to average 7% from 2009-2015, in line with the trend rate measured from 1943 to 2005. Earnings growth has been above the long-term average for the past 17 consecutive quarters. Bottom-up estimates imply double-digit earnings growth will persist into 2007, based on consensus estimates for the S&P 500 (see Exhibit 7). Long-term S&P 500 earnings growth can often exceed nominal GDP growth due to its survivorship bias. Bankrupt or low-quality companies are often replaced with faster- growing substitutes. Energy and Materials companies are good examples of those that have had the capacity to pay dividends, but have not shown a propensity to pay so far this cycle. Earnings growth over the past three years has been particularly strong in these two sectors, but many of these companies have elected not to increase their dividends as quickly as earnings were growing. Instead, many companies paid out special dividends (See Exhibit 30 for a list of special dividends paid out so far in 2006). As these companies’ profit growth slows to a more sustainable pace, they will likely increase their payout ratios. Exhibit 7: There have been 17 consecutive quarters with above-trend growth 0 5 10 15 20 25 30 35 40 45 50 2Q 02 4Q 02 2Q 03 4Q 03 2Q 04 4Q 04 2Q 05 4Q 05 2Q 06 4Q 06 E 2Q 07 E 4Q 07 E EP S G ro w th (Y o Y) Trend growth=7% S&P 500 500 EPS growth 3Q2006 is expected to be the 18th consecutive quarter with above-trend growth. This should persist into 2007. 2006E Earnings Growth 2007E Earnings Growth Annual 1Q 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2006E 2007E Materials 10 % 24 % 46 % 40 % 12 % 0 % (0)% (3)% 28 % 3 % Financials 8 20 31 30 8 4 11 11 19 8 Energy 41 45 19 2 19 5 13 13 22 3 Telecommunication Services 50 39 19 8 8 4 8 8 14 6 S&P 500 16 % 19 % 16 % 14 % 11 % 8 % 13 % 13 % 15 % 10 % Utilities 10 15 12 5 8 18 13 12 8 13 Industrials 19 12 11 17 10 16 16 14 15 13 Consumer Discretionary 15 10 6 12 9 6 15 13 14 15 Consumer Staples 7 9 8 9 12 11 13 12 6 11 Information Technology 17 12 5 9 11 19 20 19 10 17 Health Care 10 10 3 4 5 6 17 16 7 11 Note: Historical operating EPS growth is based on a Goldman Sachs proprietary series. Forward-looking growth is based on bottom-up consensus estimates. Source: First Call, Compustat, and Goldman Sachs Research estimates. United States Portfolio Strategy Goldman Sachs Global Investment Research - September 25, 2006 7 Companies within the S&P 500 also have additional capacity to increase dividends through existing cash on the b