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- Title
STOCK RETURNS AND DIVIDEND YIELDS: SOME MORE EVIDENCE.
- Authors
Blume, Marshall E.
- Abstract
The analyses in this paper suggest a considerably more complicated relationship between returns realized on common stocks and dividend yield than has been revealed in prior work. In the three decades ending in 1976, those stocks with anticipated yields in excess of the mean market-wide yield outreturned non-dividend paying stocks at each level of beta. This finding helps to rationalize the survey results reported in the Introduction that many individuals currently prefer increased dividends with a corresponding reduction of retained earnings when tax considerations might suggest the opposite. Throughout the forty-one years ending in 1976, the risk-adjusted returns on dividend-paying stocks increased monotonically with anticipated dividend yield. Over the thirty years ending in 1976, the average returns on all dividend-paying issues were about the same as on non-dividend paying issues. Over the 1937-46 period, the total returns on non-dividend paying stocks tended to exceed, on average, the returns on most dividend paying stocks. Various possibilities were considered in an at- tempt to explain the monotonic relationship of the risk-adjusted returns on dividend paying stocks to anticipated dividend yield. Of those considered, the most plausible one is that the market failed to anticipate the greater relative growth of dividends for high yielding stocks as compared to lower yielding stocks. As pointed out in the text, this result, even if true, is not sufficient to conclude that market expectations were irrational. The empirical results of this paper have been interpreted within the context of the Sharpe-Lintner capital asset pricing model in which expected returns of individual assets are solely a function of their beta coefficients. Another interpretation of the results is that the Sharpe-Lintner model is too restrictive and that dividend yield is acting as a surrogate for some unspecified variables omitted from this model. Indeed, there is a growing body of evidence consistent with this proposition.27 Whether this more general interpretation of the results is warranted must await further theoretical and empirical work.
- Subjects
UNITED States; DIVIDENDS; STOCKS (Finance); DIVIDEND yield; PROFIT; RISK assessment; TAXATION; RETAINED earnings; CAPITAL gains
- Publication
Review of Economics & Statistics, 1980, Vol 62, Issue 4, p567
- ISSN
0034-6535
- Publication type
Article
- DOI
10.2307/1924781