Some use the dividends paid in the last financial

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Unformatted text preview: rent estimates of the dividend yield for the same stock. Some use the dividends paid in the last financial year, others use dividends paid over the last four quarters and there are some who use expected dividends per share over the next financial year. If higher dividends make stocks more attractive investments, stocks with higher dividend yields should generate higher returns than stocks with lower dividend yields. Over the last four decades, researchers have tried to examine whether higher dividend yield stocks are superior investments. The simplest way to test this hypothesis is to create portfolios of stocks based upon their dividend yields and examine returns on these portfolios over long periods. In Figure 2.1, the average annual returns – these include price appreciation and dividend yields – are computed on ten portfolios created based upon dividend yields at the beginning of every year from 1952 and 2001. Looking at sub-periods, the highest dividend yield portfolio earned an annual return of about 16% between 1952 and 1971, about 3%...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.

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