A contrary study by Robert Arnott & Clifford Asness done in Dec 2001.http://papers.ssrn.com/sol3/papers.cfm?abstract_id=295974You can download a pdf paper here free.Conclusion:Unlike the implications of the intertemporal interpretation of the Miller and Modigliani model, and unlike optimistic “new paradigm” advocates, we find that low payout ratios (high retention rates) historically precede low earnings growth. Furthermore, this relationship is statistically strong and seems quite robust. We find the empirical facts conform to a world in which managers possess private information that causes them to pay out a large share of the earnings when they are optimistic, and a small share when they are pessimistic, so that they can be confident that they can maintain these payouts. Alternatively, the facts also fit a world in which low payout ratios lead to inefficient empire building, the funding of less-than-ideal projects and investments, leading to poor subsequent growth, while high payout ratios lead to more carefully chosen projects with relatively high returns.At this point, these explanations are conjecture, and more work on discriminating among competing explanations is appropriate. But, the positive link between payout ratios and subsequent earnings growth appears to be empirical fact, not conjecture.In a nutshell high payouts=high future earnings.Which means in my mind stocks with consistently increasing dividends trumps any payout ratio. Though one shouldn't follow that rule blindly. An exception PBI. Pitney Bowes is in a dying business. Though it has a history of increasing dividends over the past 30 years, investors recognize its service & products are heade for the dustbin just like buggy whips. A double digit dividend does not make up for the poor stock performance.Good fortune to one & all.
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