Dividend policy in South Africa

Abstract

Over 50 years ago John Lintner (1956) published a study of corporate dividend policy in which he found that firms typically set long-term target dividend payout ratios and that dividend changes tend to lag earnings changes in order to give management time to assess the permanence of any earnings rises. Five years later Miller and Modigliani (1961) demonstrated that in perfect, frictionless markets investors should be indifferent to receiving their returns in the form of dividends or price appreciation. During the intervening four decades much effort was put into developing a theory of dividend policy and into an associated body of empirical work. In 2005 Brav, Graham, Harvey and Michaely published a comprehensive survey of US corporate dividend policy. Their objective was to establish whether Lintner's findings remained relevant at the start of the 21st century and to shed light on the consistency between modern theories and the practice of corporate dividend policy. In this paper we review the work done on dividend policy in South Africa over the past 25 years and compare and contrast the results obtained in applying Brav et al. (2005)'s questionnaire to a sample of South African listed companies.

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