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Dividend Payout and Future Earnings Growth

Posted: 21 Jul 2006  

Ping Zhou

City University of New York - CUNY Baruch College

William Ruland

City University of New York (CUNY) - Stan Ross Department of Accountancy

Abstract

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 Sources

Suggested Citation

Zhou, Ping and Ruland, William, Dividend Payout and Future Earnings Growth. Financial Analysts Journal, Vol. 62, No. 3, pp. 58-69, June 2006. Available at SSRN: https://ssrn.com/abstract=918109

Ping Zhou (Contact Author)

City University of New York - CUNY Baruch College ( email )

17 Lexington Avenue
New York, NY 10021
United States

William Ruland

City University of New York (CUNY) - Stan Ross Department of Accountancy

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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