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The Role of Payout Ratio in the Relationship Between Stock Returns and Dividend Yield
Author(s) -
McManus Ian,
Ap Gwilym Owain,
Thomas Stephen
Publication year - 2004
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.0306-686x.2004.00577.x
Subject(s) - dividend yield , dividend payout ratio , earnings , economics , dividend , stock (firearms) , earnings yield , financial economics , yield (engineering) , econometrics , capital asset pricing model , monetary economics , price–earnings ratio , dividend policy , earnings per share , finance , mechanical engineering , materials science , engineering , metallurgy
This paper examines the relationship between returns and dividend yield in the UK stock market, and introduces earnings‐related data to the asset pricing model in the form of payout ratio. The latter has a considerable effect upon the inferences which would otherwise be drawn from a study of the dividend yield‐returns relationship in the absence of such earnings information. Payout ratio conveys additional signalling information and is an important adjunct to dividend yield in explaining returns.