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

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  • Verdickt, Gertjan
  • Annaert, Jan
  • Deloof, Marc

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.

Suggested Citation

  • Verdickt, Gertjan & Annaert, Jan & Deloof, Marc, 2019. "Dividend growth and return predictability: A long-run re-examination of conventional wisdom," Journal of Empirical Finance, Elsevier, vol. 52(C), pages 112-127.
    • Handle: RePEc:eee:empfin:v:52:y:2019:i:c:p:112-127
    DOI: 10.1016/j.jempfin.2019.03.002
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    Cited by:

    1. Annaert, Jan & Verdickt, Gertjan, 2021. "Go active or stay passive: Investment trust, financial innovation and diversification in Belgium's early days," Explorations in Economic History, Elsevier, vol. 79(C).
    2. Stoupos, Nikolaos & Kiohos, Apostolos, 2021. "Energy commodities and advanced stock markets: A post-crisis approach," Resources Policy, Elsevier, vol. 70(C).
    3. Ed-Dafali, Slimane & Patel, Ritesh & Iqbal, Najaf, 2023. "A bibliometric review of dividend policy literature," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Maio, Paulo & Zeng, Ming, 2023. "On the driving forces of real exchange rates: Is the Japanese Yen different?," Journal of Empirical Finance, Elsevier, vol. 74(C).
    5. Kong, Dongmin & Ji, Mianmian & Liu, Lihua, 2023. "Mandatory dividend policy and investment efficiency within state-owned business groups," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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