In reference to the many times dividends have been discussed by yours truly, and the many times people ask about results, this is a link to a relevant article recently posted on Seeking Alpha.
Eddie Herring wrote:
...Robert Arnott and Clifford Asness and published in the Jan/Feb 2003 edition of the Financial Analysts Journal, which was studying dividend policy in regard to payout ratios, the authors constructed an index for stocks from 1871 to 2001 and determined that "the historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low." They went on to state that "our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth."...
Eddie Herring wrote:
...confirmed the conclusion reached by the Arnott/Asness study that higher dividend payments actually lead to higher earnings. ...
Eddie Herring wrote:
...Zhou and Ruland titled "Dividend Payout and Future Earnings Growth," and published in the Financial Analysts Journal, May/June 2006, have demonstrated that companies with a high dividend payout record tend to exhibit strong earnings growth. Those same companies have also exhibited a tendency to provide better returns to investors over time. ... dividend growth companies outperformed non-dividend paying companies by 8.7% per year over a recent 30-year period. ...
I'm not commenting for or against dividends, but I always think it's BS when someone constructs an index from the 1800s through modern times in order to prove a specific strategy. The only way to make such an index is to buy and sell the right sectors of each era at precisely the right times (railroads, banks, industrials, etc.)
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Isn't this just another manifestation of the principle that if market valuations are high future returns are expected to be low, and when market valuations are low future returns are expected to be high?
This paper by Geoff Considine is pretty interesting in a related way. He finds that dividend strategies have lower expectation risk (or, higher certainty of return) than total return strategies. The more certain returns are, of course, at the expense of higher (but unknown in amount and occurrence) returns from growth.
It is the settled policy of America, that as peace is better than war, war is better than tribute. The United States, while they wish for war with no nation, will buy peace with none"James Madison
