Surprise! Higher Dividends Higher Earnings Growth

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1、Surprise!HigherDividends=HigherEarningsGrowthRobertD.ArnottandCliffordS.AsnessWeinvestigatewhetherdividendpolicy,asobservedinthepayoutratiooftheU.S.equitymarketportfolio,forecastsfutureaggregateearningsgrowth.Thehistoricalevidencestronglysuggeststhatexpectedfutureearningsgrowthisfastestwhenc

2、urrentpayoutratiosarehighandslowestwhenpayoutratiosarelow.Thisrelationshipisnotsubsumedbyotherfactors,suchassimplemeanreversioninearnings.Ourevidencethuscontradictstheviewsofmanywhobelievethatsubstantialreinvestmentofretainedearningswillfuelfasterfutureearningsgrowth.Rather,itisconsistentwit

3、hanecdotaltalesaboutmanagerssignalingtheirearningsexpectationsthroughdividendsorengaging,attimes,ininefficientempirebuilding.Ourfindingsofferachallengetomarketobserverswhoseethelowdividendpayoutsofrecenttimesasasignofstrongfutureearningstocome.ince1995,anduntilarecentuptickarisingDR=----+G.(

4、1)fromplungingearnings,marketwidedivi-PSdend-payoutratiosintheUnitedStateshaveExpectedreturn,R,equalsthedividendyield,D/beeninthelowesthistoricaldecile,reachingP,plusanassumedconstantexpectedgrowthterm,unprecedentedlowlevelsfromlate1999tomid-G.Now,thedividendyielditselfcanbethoughtof2001.Alt

5、ernativelystated,earnings-retentionratesastheproductofthedividend-payoutratio,D/Ehaverecentlybeenatornearall-timehighs.Mean-(theratioofdividendstoearnings),andtheearn-while,price-to-earningsratiosandprice-to-ingsyield,E/P(theinverseofP/E):dividendratiosarehighbyhistoricalstandards,despitethe

6、sharpfallinstockpricessinceearly2000.D---------ER=+G.(2)WithrecentvaluationratiosatsuchhighlevelsandEPdividendpayoutssolow,theonlywayfuturelong-Equation1andEquation2canbeappliedtoatermequityreturnsarelikelytorivalhistoricalgivencompanyortothemarketportfolioitself.Wenormsisiffutureear

7、ningsgrowthisconsiderablyfocusonthelatterapplication.Assumingdividendfasterthannormal.Somemarketobservers,includ-policydoesnotaffecttheexpectedreturnontheingsomeleadingWallStreetstrategists,doindeedmarketportfolio(andassumingthepayoutratioisforecas