1. What Happened to the Predictive Power of Dividend Yield? Big Alpha Asset Management February 24, 2000 Scott Chan Derrick Roth Ray Tong Goodloe White Frank Young

2. Long Term Historical View Up until 1980, dividend yield was a good predictor of future market returns…..

3. Recent History ….. then things changed in the 1980s.

4. Hypothesis While historically, dividends were a sign of future financial strength, today, the market has more growth companies that have never paid dividends contributing to returns. So, we took out the companies that never paid dividends.

5. Data Gathering Simplifications were required…. Started with S&P 100 stocks in Jan 2000 Gathered dividend, price data for these stocks from Compustat (data only available post 1970) Calculated annual, value-weighted return for stocks with a dividend yield greater than 0.50% Problems Survivorship bias Only a proxy for the entire market Not enough data (15 points)

6. Results with Modified Returns Picture was even more noisy.

7. What is happening? One more thought, remember…… Dividend Yield = Dividend Price

8. Regression Results We regressed 5-Yr Modified Market Return against all three factors:

9. Stocks in Index