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The effect of dividend payouts on future earnings

Author

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  • Gizelle D. Willows
  • Lawrence W.K. Ho
  • Darron West

Abstract

The conventional expectation of the relationship between the level of dividend payout and future earnings growth, based on established finance theories, is that it is negative. This expectation stems from the perceived attractiveness of having enough available retained earnings to fund any potential future growth opportunities. However, research performed in various markets at the turn of the century has challenged this belief. This paper seeks to update this theory by investigating the relationship in a more current dataset, from 1988 to 2014. Furthermore, given the investment opportunities within emerging markets, the dataset pertains to South African listed companies. Assessing two different earning measures, over multiple years, a multivariate regression analysis revealed a statistically significant positive relationship between dividend payout and future earnings. Dividend payout decisions are seen by investors as a predictor for future value growth and, as such, management should be aware of their associated dividend distribution decisions.

Suggested Citation

  • Gizelle D. Willows & Lawrence W.K. Ho & Darron West, 2020. "The effect of dividend payouts on future earnings," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 10(4), pages 569-583.
    • Handle: RePEc:ids:afasfa:v:10:y:2020:i:4:p:569-583
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    Cited by:

    1. Zhou, Yue & Wu, Jianzhong & Song, Guanyu & Long, Chao, 2020. "Framework design and optimal bidding strategy for ancillary service provision from a peer-to-peer energy trading community," Applied Energy, Elsevier, vol. 278(C).
    2. Anderson, Edward & Zachary, Stan, 2023. "Minimax decision rules for planning under uncertainty: Drawbacks and remedies," European Journal of Operational Research, Elsevier, vol. 311(2), pages 789-800.
    3. Katarzyna Kocur-Bera & Anna Lyjak, 2021. "Analysis of Changes in Agricultural Use of Land After Poland’s Accession to the EU," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 517-533.

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