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The changing role of dividends: a firm‐level study from the nineteenth to the twenty‐first century

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  • Stephen R. Foerster
  • Stephen G. Sapp

Abstract

We investigate the changes in dividend policy for one of North America's oldest banks (and Canada's first bank), Bank of Montreal, over time by considering the relationships between dividends, prices and earnings for this prominent firm. In the early part of the sample we find that annual dividend and earnings changes are highly variable, with dividend changes following changes in earnings and a larger portion of investors' returns coming from dividends. Since World War II dividend policy has been characterized by more stable and gradual increases in dividends, with more of investors' returns coming from capital gains. Overall, our results suggest that investors' perception of dividends has changed over time, allowing management to pay smaller dividends and reinvest funds in the firm. Les auteurs étudient les changements dans la politique de dividendes d'une des plus vieilles banques (et la première banque au Canada) la Banque de Montréal. On considère les relations entre dividendes, prix de l'action, et bénéfices pour cette entreprise. Au début de la période, les changements dans les dividendes et les bénéfices annuels sont fort variables : les changements dans la taille des dividendes suivant les changements de bénéfices, et une portion relativement plus importante des rendements des investisseurs provenant des dividendes. Depuis la Seconde Guerre Mondiale, la politique de dividendes est marquée par des accroissements graduels et plus stables, et une portion plus grande des rendements provient des gains de capitaux. En général, les résultats indiquent que la perception des dividendes par les investisseurs a changé dans le temps, ce qui permet aux administrateurs de payer de plus faibles dividendes et de réinvestir davantage dans l'entreprise.

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  • Stephen R. Foerster & Stephen G. Sapp, 2006. "The changing role of dividends: a firm‐level study from the nineteenth to the twenty‐first century," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(4), pages 1316-1344, November.
    • Handle: RePEc:wly:canjec:v:39:y:2006:i:4:p:1316-1344
    DOI: 10.1111/j.1540-5982.2006.00391.x
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