Long-term dividend policy: influence on stock returns and volatility

Abstract

Goal: determine if there is empirical relationship between dividend policy and stock returns and volatility Objectives: provide an overview of theories describing different aspects of dividend policy that provide basis for results interpretation, formulate dividend policy analysis framework, study US public companies to find dividend policy effect on stock price and volatility. Key results: Using a framework that combines two quantifiable characteristics of common stock dividend policy: payout ratio and Speed of Adjustment of dividends author constructed and compared portfolios of companies with different dividend policy characteristics. Main findings are: higher payout ratios are on average associated with lower returns, SOA does not affect returns, more volatile stocks tend to have lower payout ratios, stocks with higher SOA are more risky. Managers may use dividend policy to affect stock price and volatility.