The Long-Run Drivers of Stock Returns: Total Payouts and the Real Economy

Article
  1. Poor
  2. Satisfactory
  3. Good
  4. Very Good
  5. Excellent

Average: 4.8 (32 ratings)

Financial Analysts Journal
Third Quarter 2017 | Vol. 73 | No. 3 | 21 pages
Source: CFA Institute
Philip U. Straehl Roger G. Ibbotson

US$0.00 Member | US$0.00 Candidate | US$0.00 Nonmember

Read

Summary

We provide theoretical and empirical evidence over 1871–2014 that total payouts (dividends plus buybacks) are the key drivers of long-run stock market returns. We show that total payouts per share (adjusted for the share decrease from buybacks) grew in line with economic productivity, whereas aggregate total payouts grew in line with GDP. We also show that a dividend discount model (DDM) based on current yields and historical growth rates underestimates expected returns relative to the total payout model. Finally, we demonstrate that the cyclically adjusted total yield (CATY) predicts changes in expected returns at least as well as the cyclically adjusted price-to-earnings ratio (CAPE).


View more information

Topics
Credits · About the CE Program
1 CE (including 0 SER) Manage CE Credits

People who viewed this page also viewed:

Article
News vs. Sentiment: Predicting Stock Returns from News Stories
CFA Institute: Financial Analysts Journal
Article
Are Cash Flows Better Stock Return Predictors Than Profits?
CFA Institute: Financial Analysts Journal

Loading ...