Dividend growth and return predictability: A long-run re-examination of conventional wisdom

Gertjan Verdickt, Jan Annaert and Marc Deloof

Journal of Empirical Finance, 2019, vol. 52, issue C, 112-127

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: Dividend-to-price ratio; Return predictability; Dividend growth predictability; Equity duration (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:52:y:2019:i:c:p:112-127

DOI: 10.1016/j.jempfin.2019.03.002

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