Global Equities: Can Dividends Signal Growth?

FWD

David Ruff

Research

8 Pages

This paper examines how dividend policies can provide valuable clues about future earnings growth rather than simply serving as a source of income. It argues that dividend yields and payout ratios can help investors identify stronger businesses, highlighting evidence that equity income funds returned 56.4% versus 41.1% over a 10 year period.

Key Takeaways

Income And Growth: Equity income funds delivered a 56.4% cumulative return versus 41.1% for growth funds during the 10 years ending December 31, 2011.
Quality Over Yield: Across 12 countries over 22 years, stocks with high dividend yields and low payout ratios produced the strongest total returns in 9 markets studied.
Global Dividend Advantage: The MSCI EAFE Index offered a 4.1% weighted average dividend yield in 2011, compared with 2.7% for the S&P 500, supporting dividends as a useful global investment signal.
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