It may seem too good to be true, but companies that pay the highest dividends are also likely to grow the fastest.
For years, many finance professors have taught just the opposite. Reinvesting current earnings back into a company is supposed to promote earnings growth. Higher payout ratios are supposed to be followed by lower earnings growth.
But research conducted by Robert D. Arnott of First Quadrant and Clifford S. Asness of AQR Capital Management reveals a very different picture. For the overall stock market between 1871 and 2001, corporate profits grew fastest in the 10 years following the calendar years in which companies had the highest average dividend payout ratio. In contrast, the 10-year real earnings growth rate was the lowest following years with the lowest average payout ratios.
Arnott and Asness, who both work for quantitative research firms, began circulating early versions of their study in academic circles earlier this year. In their latest version, which will bepublished in the January/February issue of The Financial Analysts Journal, they respond to several arguments posed by critics.
Critics say that while the researchers' conclusion may accurately describe the behavior of the overall market, it may not apply to individual companies. Arnott and Asness concede that thisis possible.
But based on the preliminary results of additional research being conducted by Arnott, he believes it is likely that the pattern that he and Asness found at the level of the overall market applies to the individual firm as well. He notes in this regard another study that appeared in last December's Journal of Finance by two Columbia Business School accounting professors, Doron Nissim and Amir Ziv ("Dividend Changes and Future Profitability"). This other research found that between 1963 and 1997, earnings per share grew for two years at an above-market rate for the average company that increased its dividends.
Other critics worried that the research by Arnott and Asness may have been skewed by firms' share repurchases. Arnott and Asness reject that objection. They found that the period since 1980 fit the same pattern as did the prior period back to 1871, during which share repurchase programs were relatively rare.
Arnott and Asness believe that the primary cause of their surprising result is the poor job that the average company does when investing the cash that it would pay out as dividends. Therefore it is better for the company to distribute its earnings to shareholders.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique