Abstract
Even in large equity markets, the dividend-price ratio is significantly related with the growth of future dividends. In order to uncover this relationship, we use monthly dividends and a mixed data sampling technique which allows us to cope with within-year seasonality. We reduce the effect of price volatility on the dividend-price ratio by applying a simple smoothing technique, and we identify the component of the smoothed dividend-price ratio that offers predictive power. An empirical analysis using market level data from U.S., U.K., Canada and Japan strongly supports the dividend growth predictability hypothesis, suggesting that time-aggregation of dividends eliminates significant information.
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