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Dividend Yield and Stability versus Performance at the German Stock Market

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Author Info
Antje Henne () (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
Sebastian Ostrowski (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
Peter Reichling (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
Abstract

It is often examined in the literature whether the dividend yields of stocks correlate with their total returns. This paper analyzes the effect of dividend yield on return as well as on risk and on performance of stocks and stock portfolios. Not only the influence of dividend yield but also of dividend stability is subject of our analysis. Furthermore, tax aspects are considered. Our data set comprises daily adjusted stock prices and dividend payment data from the German capital market over the period 2000 to 2006. We use stocks from the HDAX, which include blue chips (DAX), stocks of medium-sized companies (MDAX), and stocks of technology firms (TecDAX). Our findings suggest that the performance generally improves with an increasing dividend yield. However, this result is rather based on risk reduction than on a higher return where risk reduction diminishes by increasing the degree of diversification.

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File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_17.pdf
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Publisher Info
Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 07017.

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Length: 27 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:mag:wpaper:07017

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Related research
Keywords: dividend yield; dividend stability; diversification; performance;

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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  1. Goetzmann, William Nelson & Jorion, Philippe, 1993. " Testing the Predictive Power of Dividend Yields," Journal of Finance, American Finance Association, vol. 48(2), pages 663-79, June. [Downloadable!] (restricted)
    Other versions:
  2. Ian McManus & Owain ap Gwilym & Stephen Thomas, 2004. "The Role of Payout Ratio in the Relationship Between Stock Returns and Dividend Yield," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 31(9-10), pages 1355-1387. [Downloadable!] (restricted)
  3. Blume, Marshall E, 1980. "Stock Returns and Dividend Yields: Some More Evidence," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 567-77, November. [Downloadable!] (restricted)
  4. Goetzmann, William N & Jorion, Philippe, 1995. "A Longer Look at Dividend Yields," Journal of Business, University of Chicago Press, vol. 68(4), pages 483-508, October. [Downloadable!] (restricted)
    Other versions:
  5. Gombola, Michael J & Liu, Feng-Ying, 1993. "Considering Dividend Stability in the Relation between Dividend Yields and Stock Returns," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 16(2), pages 139-50, Summer.
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  7. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 5(3), pages 357-86. [Downloadable!] (restricted)
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  11. Gombola, Michael J & Liu, Feng-Ying L, 1993. "Dividend Yields and Stock Returns: Evidence of Time Variation between Bull and Bear Markets," The Financial Review, Eastern Finance Association, vol. 28(3), pages 303-27, August.
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  15. Keim, Donald B., 1985. "Dividend yields and stock returns: Implications of abnormal January returns," Journal of Financial Economics, Elsevier, vol. 14(3), pages 473-489, September. [Downloadable!] (restricted)
    Other versions:
  16. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June. [Downloadable!] (restricted)
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