Dividend Regressions: January 2018



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. 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.
  5. 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.

 

US Regression: Dividend Yield

 

 

 

  US Regression Output

Dividend Yield = .0298 -.0195 Beta - 0.0164 Expected Growth +.027 Market Debt to Capital Ratio

T statistic on intercept = 34.70

T statistic on beta = 5.88

T statistic on expected growth = 22.01

T statistic on debt to capital ratio = 17.72

 

 

US Regression: Dividend Payout

 

 

 

Regression Output

Dividend Payout = .888 -.690 Beta + 0.466 Expected Growth +.50 Market Debt to Capital Ratio

T statistic on intercept = 19.23

T statistic on beta = 2.72

T statistic on expected growth = 14.14

T statistic on debt to capital ratio = 5.94

 

 

 

Global Regression: Dividend Yield

 

 

 

  Regression Output

Dividend Yield = .0193 -.0009 Beta - 0.0019 Expected Growth +.023 Market Debt to Capital Ratio

T statistic on intercept = 41.47

T statistic on beta = 15.83

T statistic on expected growth = 3.28

T statistic on debt to capital ratio = 26.82

 

 

Global Regression: Dividend Payout

 

 

 

Regression Output

Dividend Payout = .454 -.127 Beta -0.366 Expected Growth +.60 Market Debt to Capital Ratio

T statistic on intercept = 20.69

T statistic on beta = 5.83

T statistic on expected growth = 10.12

T statistic on debt to capital ratio = 14.31

 

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

Regression beta = 1.20

Expected Growth in EPS over next 5 years = 10%

Market Debt to Capital = 30%

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