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Dividend Payout and Future Earnings Growth
Ping Zhou and William Ruland
Financial Analysts Journal
Vol. 62, No. 3 (May - Jun., 2006), pp. 58-69
Published by: CFA Institute
Stable URL: http://www.jstor.org/stable/27651705
Page Count: 12
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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.
Financial Analysts Journal © 2006 CFA Institute