Abstract
Aggregate dividend growth is widely thought to be unpredictable by the dividend price ratio. I show that this lack of predictability is related to the measurement of dividends. If M&A cash flows are taken into account, the adjusted R2 from a regression of dividend growth on the dividend price ratio goes from being negative (-1.18%) to being positive (17.54%) and coefficients become highly statistically significant. Strong improvements are also found for consumption growth (2.10% to 11.76%) and returns (1.86% to 4.40%). Out-of-sample R2 for dividend growth and returns are large and statistically significant. I also show that dividend price variation is fundamentally linked to cash flows news and not only to discount rate news. Lastly, I find stronger predictability in industries with the largest M&A activity.