Dividends and Buybacks

Should investors be indifferent to dividend impact on stock returns?

By |February 3rd, 2023|Dividends and Buybacks, Research Insights, Larry Swedroe|

In their 1961 paper, “Dividend Policy, Growth, and the Valuation of Shares,” Merton Miller and Franco Modigliani famously established that dividend policy should be irrelevant to stock returns. As they explained it, at least before frictions like trading costs and taxes, investors should be indifferent to $1 in the form of a dividend (causing the stock price to drop by $1) and $1 received by selling shares. This must be true, unless you believe that $1 isn’t worth $1. This theorem has not been challenged since, at least in the academic community.

Can Investment Flows Affect Prices? Yep.

By |March 25th, 2022|Dividends and Buybacks, Price Pressure Factor, Factor Investing, Research Insights, Academic Research Insight, Behavioral Finance, Tactical Asset Allocation Research|

Traditional finance theory suggests that stocks prices always reflect their fair market values based on publicly available information. Or in academic parlance, the "semi-strong" form efficient markets hypothesis serves as the null. What are the implications of this hypothesis? Well, the hypothesis suggests that the only reason a stock price will move is due to a shift in fundamentals (either through a change in expected cash flows or via the discount rate). But what about supply and demand shifts?

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