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What Difference Do Dividends Make?

33 Pages Posted: 23 Jun 2016 Last revised: 25 Jun 2016

C. Mitchell Conover

University of Richmond - E. Claiborne Robins School of Business

Gerald R Jensen

Creighton University

Marc William Simpson

The John B. and Lillian E. Neff Department of Finance, University of Toledo

Date Written: June 21, 2016

Abstract

We evaluate the investment benefits of dividend-paying stocks and make three major findings. First, high-dividend stocks have the least risk, yet return over 1.5% more per year than non-dividend payers. Second, the benefit of targeting dividend payers is conditional on investment style. Surprisingly, the benefit is largest for growth and small-cap stocks; the very firms that are usually thought to benefit the most from the reinvestment of cash flow. Third, long/short managers exploiting the value premium should focus on non-dividend-paying stocks. The return difference between non-dividend-paying, small-cap value versus small-cap growth stocks exceeds 1% per month.

Keywords: Dividend yield, Investment style, Value stocks

JEL Classification: G11, G35

Suggested Citation

Conover, C. Mitchell and Jensen, Gerald R and Simpson, Marc William, What Difference Do Dividends Make? (June 21, 2016). Financial Analysts Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2798809

C. Mitchell Conover

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

Gerald Jensen (Contact Author)

Creighton University ( email )

2500 California Plaza
Omaha, NE 68178
United States

Marc Simpson

The John B. and Lillian E. Neff Department of Finance, University of Toledo ( email )

Toledo, OH 43606
United States

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