International Evidence on the Accuracy, Sophistication and the Usefulness of Analyst Dividend Forecasts to Investors

Abstract

This study documents that analysts produce accurate, sophisticated and informative dividend estimates that are useful to investors. In a sample of 16 countries, we document that (i) analyst dividend forecasts are more accurate and better approximate market dividend expectations than time-series dividend forecasts, and that (ii) analysts exert effort to produce accurate dividend estimates, beyond the effort they put into forecasting accurate earnings. Dividend forecasts are useful to investors as (i) they convey incremental information beyond that contained in analyst earnings forecasts, target prices and stock recommendations and (ii) they help investors interpret persistence of earnings news. Cross-country variations in the accuracy and information content of dividend forecasts are explained by differences in the taxation of dividends compared to capital gains, importance of equity markets, quality of regulation, legal enforcement, and IFRS regulation.