Source: Boudoukh, Michaely, Richardson & Roberts (2007) · The Journal of Finance · DOI: 10.1111/j.1540-6261.2007.01226.x
TL;DR
As firms shifted from dividends to repurchases, the dividend-price ratio stopped summarizing payout — but the total payout ratio (dividends + repurchases, over price) barely changed. The widely cited "decline in dividend predictability" is therefore vastly overstated: using payout yield (and net payout yield, also subtracting issuances) restores statistically and economically significant predictability of excess market returns at both short and long horizons, and these measures also carry cross-sectional return information. The high-minus-low payout-yield portfolio is a priced factor.
What anomaly it documents
Predictor: total payout yield = (dividends + repurchases)/price; and net payout yield.
Direction: positive — high payout-yield firms/markets earn higher returns.
Shape: time-series predictability restored at short & long horizons; cleaner than dividend yield.
OSAP predictor: PayoutYield.
How to construct it
Sorting variable: payout (or net payout) yield over the prior year.
Universe: NYSE/AMEX/Nasdaq common stocks; repurchases from the statement of cash flows (available 1971–2002), dividends 1926–2002.
Portfolio formation: rank into payout-yield deciles.
Better cash-flow proxy: total payout captures shareholder cash flows dividends miss in the buyback era.
Discount-rate signal: high payout yield reflects high required returns.
Limitations and risks
Value overlap: correlated with book-to-market and other yield measures.
Repurchase measurement: net repurchases are noisy to compute from statements.
Issuance timing: net payout folds in the share-issuance anomaly.
Key references
Boudoukh, J., Michaely, R., Richardson, M. & Roberts, M. (2007) — On the Importance of Measuring Payout Yield — Journal of Finance — DOI: 10.1111/j.1540-6261.2007.01226.x
Pontiff, J. & Woodgate, A. (2008) — Share Issuance and Cross-Sectional Returns — JF
Provenance: verified/generated from the paper's full text.
