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The second set of studies document the longer-term returns o n portfolios
constructed of companies that increase their dividends the most. Here, the results are mixed.
After the initial price jolt created by the dividend increase, there is some evidence of
continued price increases6 for a few weeks after the announcement but the price increase is
modest. In other words, buying stocks that have boosted dividends recently does not deliver
higher returns in the long term. 6 Michaely, R, R.H. Thaler and K.L. Womack, 1995, Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift? Journal of Finance, v50, 573-608. This study looked at returns on
stocks that increase dividends in the months after the dividend increase and concludes that stocks that
increase dividends continue to do well whereas stocks that decrease dividends are poor investments. 24 Crunching the numbers
For purposes of analysis, accept the argument that stocks that have high dividend
yields are good investments....
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- Spring '11