Dividend Regressions: January 2013


Variables used in the regression

  1. Dividend Yield = Dividends per share in most recent year/ Current Stock Price
  2. Dividend Payout Ratio = Dividends / Net Income
  3. Beta: Regression or Bottom up beta
  4. Insider Holdings = Shares held by insiders/ Primary number of shares outstanding s
  5. Expected Growth in EPS over next 5 years = Consensus analyst estimate (or your own) of expected growth in EPS . If you don't have an analyst estimate, use your own estimate of expected growth.
  6. Market Debt to Capital = Debt/ (Debt + Market Value of Equity): If you have market value for debt, use it. If not, use book value of debt and market value of equity.

Dividend Yield Regression

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Assume that you want to estimate the dividend yield for a firm with the following characteristics:

Insider holdings = 15%

Regression beta = 1.20

Expected Growth in EPS over next 5 years = 12%

Market Debt to Capital = 20%

Expected Dividend yield = .039 - 0.009 (.15) -0.014 (1.20) -0.054 (.12) + 0.020 (.20) = .01837 or 1.84%

If your predicted value is less than zero, your predicted dividend yield is zero.

Dividend Payout Regression

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Assume that you want to estimate the dividend payout ratio for a firm with the following characteristics:

Insider holdings= 15% of outstanding stock

Regression beta = 1.20

Expected Growth in EPS over next 5 years = 12%

Market Debt to Capital = 20%

Expected Dividend payout ratio= 0.639 - 0.09*.15 - 0.336 *1.20 - 0.132*.12 + 0.260*.20 = 0.2584 or 25.84%

If your predicted value is less than zero, your predicted dividend payout ratio is zero.