Analyst Dividend Forecasts and Their Usefulness to Investors: International Evidence

Abstract

Recent finance and accounting studies indicate that dividends are ‘sticky’ and declining in economic importance. If so, there should be little investor demand for analyst dividend estimates and analyst dividend forecasts should simply mirror time-series estimates. We examine firms from 16 countries spanning 2000-2013 and find that only 25% of firms exhibit sticky dividends, while the majority either increase (54%) or decrease (21%) their annual dividends. In contrast to the disappearing dividends view, we predict that this high variability in dividend payments across stocks actually increases investor demand for dividend information. Accordingly, analysts respond to this demand by producing informative dividend forecasts. Our analysis indicates that analysts’ dividend estimates are indeed useful to investors because they (i) are more accurate and better aligned with market dividend expectations than other estimates, such as standard time-series modelling approaches, (ii) convey incremental information to the market beyond that contained in other fundamentals, and (iii) help investors interpret the persistence of earnings news.