Uncovering Dividend Growth Predictability: New Evidence from the Post-WW II Period (2015)

 with Abhay Abhyankar

Abstract:

WWe re-visit a puzzling result that in U.S. post-WW II data the dividend price ratio can predict aggregate returns but not dividend growth. We find that predictive regressions are sensitive to the method used to aggregate firm-level data. Using value weighted firm-level data we find strong evidence for dividend growth predictability in the post-WW II period. We explore the reasons behind the differences in predictability due to different weighting methods. We find that these differences in predictability are related to the fact, in the data, that it is not always the largest firms that pay the largest dollar dividends or earnings.

FMA 2014 (Maastricht), SAEe 2013 (Santander) , XXI Finance Forum 2013 (Segovia), ICADE 2013 (Madrid), IESE Business School 2013 (Madrid), Moody's Analytics 2013 (London), University of Durham (Durham)*, I.I.M Bangalore (Bangalore)*, Southwestern University of Finance and Economics (Chengdu)* .

*Presented by co-authors.

Keywords: asset pricing, dividend growth predictability, present-value model, predictability of stock returns, weighting of firm dividends, changes in dividend payments, quintiles, earnings.

JEL Classification: C22, E44, G1, G12, G14, G35.

Working Papers

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