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International Evidence on the Payout Ratio, Earnings, Dividends, and Returns

Owain ap Gwilym, James Seaton, Karina Suddason and Stephen Thomas
Financial Analysts Journal
Vol. 62, No. 1 (Jan. - Feb., 2006), pp. 36-53
Published by: CFA Institute
Stable URL: http://www.jstor.org/stable/4480729
Page Count: 18
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International Evidence on the Payout Ratio, Earnings, Dividends, and Returns
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Abstract

Recent evidence for the U.S. market has shown that, contrary to popular wisdom, the greater the proportion of earnings paid out as dividends, the greater the subsequent real earnings growth. This study extends previous work by examining whether a similar relationship exists in 11 international markets and by considering the role the payout ratio plays in explaining future real dividend growth and returns. Higher payout ratios do indeed lead to higher real earnings growth--but not to higher real dividend growth. This information has limited use, however, for predicting future returns.

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