Dividend Payout and Future Earnings Growth
City University of New York - CUNY Baruch College
City University of New York (CUNY) - Stan Ross Department of Accountancy
Financial Analysts Journal, Vol. 62, No. 3, pp. 58-69, June 2006
Because dividends reduce the funds available for investment, many market observers and investors associate high dividend payout with weak future earnings growth. Tests using aggregate market data, however, provided evidence that contradicts that view. Because aggregate results may not apply at the company level, we conducted a company-by-company analysis of the relationship between payout and future earnings growth. Our tests also show that high-dividend-payout companies tend to experience strong, not weak, future earnings growth. These results are robust to alternative measures of payout and earnings, sample composition, mean reversion in earnings, the effects of particular industries, time periods, and share repurchases.
Keywords: Equity Investments: Fundamental Analysis and Valuation Models, Research SourcesAccepted Paper Series
Date posted: July 21, 2006
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