The Implication of Payout Policy on Stock Performance

Sammanfattning: This paper measures the effect of payout policies on stock returns in times of economic turbulence. We go through the most recent financial crisis from 2007 to the end of 2009 as well as the dotcom bubble in the end of 2000. We also look at an older crisis that took place in the late 1980’s, cumulating with the Black Monday stock market crash in 1987. We extract our sample from the S&P 500 Index constituents listed on the US stock market and sort these companies into portfolios separated by their payout policy. The portfolios are categorized before each crisis and their returns performance are monitored over a five-year period. Our research finds evidence for that paying out more cash to shareholders in terms of both stock repurchase programs as well as dividends has a clear positive effect on returns even during crisis times. We also take into account other variables e.g. size, capital expenditure, earnings beta and book to market variables in order to see if they can explain the returns performed by each payout portfolio.