Dividend Growth and Return Predictability: A Long-Run Re-Examination of Conventional Wisdom

65 Pages Posted: 29 Nov 2018 Last revised: 8 Oct 2019

See all articles by Gertjan Verdickt

Gertjan Verdickt

Monash University - Department of Banking and Finance

Jan Annaert

University of Antwerp Department of Accounting & Finance; University of Antwerp - Antwerp Management School

Marc Deloof

University of Antwerp; University of Antwerp - Antwerp Management School

Date Written: March 7, 2018

Abstract

We re-examine dividend growth and return predictability evidence using 165 years of data from the Brussels Stock Exchange. The conventional wisdom holds that time-varying dividend yield is predominately explained by changes in expected returns and that expected dividend growth is only weakly forecastable. However, we find robust dividend growth predictability evidence in every time period. A lack of dividend smoothing is the most important reason for the disconnect with previous evidence. Furthermore, we find return predictability in the post–World War II period when we adjust the dividend yields for changing index composition, business cycle variation and structural breaks. This is explained by a simultaneous increase in equity duration, induced by an increasing importance of growth stocks.

Keywords: return predictability, dividend growth predictability, equity duration, financial history

JEL Classification: G12, G17, N2

Suggested Citation

Verdickt, Gertjan and Annaert, Jan and Deloof, Marc, Dividend Growth and Return Predictability: A Long-Run Re-Examination of Conventional Wisdom (March 7, 2018). Journal of Empirical Finance, Vol. 52, 2019, Available at SSRN: https://ssrn.com/abstract=3289064 or http://dx.doi.org/10.2139/ssrn.3289064

Gertjan Verdickt (Contact Author)

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Jan Annaert

University of Antwerp Department of Accounting & Finance ( email )

Faculty of Applied Economics
Prinsstraat 13
Antwerp, B-2000
Belgium

HOME PAGE: http://https://www.uantwerp.be/en/staff/jan-annaert/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

Marc Deloof

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

University of Antwerp - Antwerp Management School ( email )

Boogkeers 5
Antwerp, 2000
Belgium

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