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2005•Summit (Simon Fraser University)Open access

DO HIGHER DIVIDENDS LEAD TO HIGHER EARNINGS GROWTH

KC Parker

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Abstract

Recent research has discovered that the market payout ratio is a good forecaster of future growth in market earnings.This runs counter to the thought that higher growth in earnings will naturally follow from higher, and astute, re-investment of earnings.This paper adds support to the extant research on this topic by testing for and finding a relationship between the payout ratio and future real growth in earnings for the TSX Composite.The strength of this relationship is robust to various tests; however, this paper also finds periods of time where the relationship does not hold.

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What this paper is about

Recent research has discovered that the market payout ratio is a good forecaster of future growth in market earnings.This runs counter to the thought that higher growth in earnings will naturally follow from higher, and astute, re-investment of earnings.This paper adds support to the extant research on this topic by testing for and finding a relationship between the payout ratio and future real growth in earnings for the TSX Composite.The strength of this relationship is robust to various tests; however, this paper also finds periods of time where the relationship does not hold.

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Available abstract

Recent research has discovered that the market payout ratio is a good forecaster of future growth in market earnings.This runs counter to the thought that higher growth in earnings will naturally follow from higher, and astute, re-investment of earnings.This paper adds support to the extant research on this topic by testing for and finding a relationship between the payout ratio and future real growth in earnings for the TSX Composite.The strength of this relationship is robust to various tests; however, this paper also finds periods of time where the relationship does not hold.

Key concepts: Earnings, Earnings growth, Extant taxon, Price–earnings ratio, Lira, Dividend payout ratio, Economics, Wife

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