Payment history, past returns and the performance of UK zero dividend stocks

Abstract

Purpose – A growing strand of literature has focused on the returns performance of zero dividend stocks. This paper seeks to provide new evidence on the link between dividend payment and returns history and firms’ subsequent stock market performance.Design/methodology/approach – Prior research draws a distinction between those stocks which have never paid dividends and those which formerly paid dividends but subsequently ceased, implicitly using the latter as a measure of financial distress. The analysis is expanded beyond the role of payment history, and also the importance of earnings and past returns in the performance of UK zero‐dividend stocks is considered.Findings – In contrast with the prior US evidence, it was found that payment history is not a significant determinant of returns, while past returns play a far greater role. However, this explanatory power seems to be diminishing over time.Research limitations/implications – The paper extends the existing knowledge about the behaviour of UK zero d...