The Changing Nature of Dividend Policy and Its Implications for the Investor

Abstract

Dividend yields are at an all-time low in the current decade, and the dividend payout ratio is down to 30%. This article examines the reasons why these changes have taken place, whether they are likely to continue in the future, and the implications for the investor. Empirical investigation of high-yield stock performance after the passage of the 2003 Tax Act indicates, at best, a neutral performance. The author’s survey of 1,207 practicing financial analysts portends a continuation of less emphasis on dividend payout and a great emphasis on stock buybacks and internal reinvestment of profits. The total return concept will continue to take on greater meaning for the investor.

TOPICS: Legal/regulatory/public policy, portfolio construction, portfolio management/multi-asset allocation