Preference for dividends and stock returns around the world

Abstract

We find strong international evidence favoring dividend payout as a salient stock characteristic affecting expected stock returns. We find that dividend-paying stocks outperform non-payers by 0.54% per month in 44 countries, adjusting for exposures to global and regional risk factors. The majority of the dividend premium is earned during the ex-dividend months. The dividend premium is higher following bad market states and co-varies across countries. Dividend payers’ outperformance is stronger in countries with poor governance but is unrelated to local tax rates on dividends. The evidence emphasizes the importance of (time-varying) preference for dividends in driving average stock returns and global return comovement.

Keywords: Dividend premium; return comovement; international studies; asset pricing

JEL Classification: G12, G35, N20