The Dividend Report - November 2023
Wall Street makes a big deal of dividend growers. Companies that raise their dividend payout each year are considered strong and healthy. Those who have done so more than 25 years in a row are considered ‘aristocrats.’ I have been suspicious of this, as I watch games like hiking the dividend by a single penny.
This is an excellent paper that suggests dividend hibernation can also be good news.
According to the signaling theories of payout policy, dividends serve as a costly signal to communicate private information about earnings or investments to the less-informed outsider. Numerous studies tests signaling theories by relating dividend changes to unexpected future earnings to determine whether they carry information content. In this paper, we ask a different question: If dividend changes transmit information held by insiders, does a constant payout policy also provide information?
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