Ap Gwilym, Owain, Seaton, James, Suddason, Karina and Thomas, Stephen
International evidence on payout ratio, returns. earnings and dividends. Southampton, UK, University of Southampton, 35pp.
(Discussion Papers in Accounting & Finance, AF04-23).
Recent US evidence has shown that, contrary to popular wisdom, the greater the proportion of earnings paid out as dividends, the greater the subsequent real earnings growth. We extend previous work by examining whether a similar relationship exists in eleven international markets as well as considering the role payout ratio plays in explaining future real dividend growth and returns. Higher payout ratios do indeed lead to higher real earnings growth, although not to higher real dividend growth. Despite the ability to anticipate earnings growth, we find limited use for this to predict future returns.
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