Download This PaperDividend Yield, Dividend Payers and Cross-Sectional Return Prediction
55 Pages Posted: 1 Dec 2023 Last revised: 13 Nov 2024
Date Written: November 12, 2024
Abstract
We provide evidence that dividend yield better predicts returns among dividend payers than alternative pricing factors, contradicting prior research. First, we calculate dividend yield using only the most recent declaration date, substantially increasing return predictability relative to the trailing yield. Second, asset pricing strategies tend to earn low returns within the mature, profitable firms that pay dividends. Cross-sectional tests suggest dividend yield predicts returns because investors value receiving the dividend, rather than it providing information about future earnings. We conclude that dividend yield is a useful valuation metric for mature and easier-to-value firms that tend to pay dividends.
Keywords: dividends, information environment, signaling
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Seong Jin Ahn
College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )
85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)
Charles Ham
Indiana University - Kelley School of Business ( email )
1309 East Tenth Street
Indianapolis, IN INDIANA 47405-1701
United States
Zachary Kaplan (Contact Author)
Washington University in St. Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
Todd T. Milbourn
Southern Methodist University (SMU) - SMU Cox School of Business ( email )
P.O. Box 750333
Dallas, TX 75275-0333
United States