Do dividends signal information about future earnings?

This article aims to examine the extent to which dividends signal information about future earnings. It examines the effects of dividend payment status and the change in dividend payment on the relation between current stock returns and future earnings. The results show that dividends contain value relevant information about future earnings and that this information is incorporated into current stock returns. In particular, we find that firms that pay dividends at the current year exhibit higher levels of share price anticipation of earnings than nondividend-paying firms. We also find that the change in dividends is positively related to changes in the importance of future earnings news for current stock returns. Finally, we find that the relevance of dividends for forecasting future earnings is greater for loss-making firms than for profitable firms.