%0 Journal Article %A Haim A. Mozes %T Practical Applications of Reinvestment and Global Stock Returns %D 2019 %R 10.3905/pa.6.3.297 %J Practical Applications %P 1-4 %V 6 %N 3 %X In Reinvestment and Global Stock Returns, from the Summer 2018 issue of The Journal of Investing, Haim A. Mozes studies an apparent contradiction between economic theory and observed reality. In theory, companies should retain their earnings for as long as the rate of return on their investments is greater than their cost of capital, and if their return on investment drops below their cost of capital, they should return capital to their investors. This suggests that dividend increases, which hand more capital back to investors, should be considered bad news, because they signal expected lower returns. But the reality is different-stock markets have a well-documented tendency to view dividend increases as good news, with stock prices rising in response.Mozes (a professor of finance at Fordham University’s Gabelli School of Business in New York) studies the relationship between dividend rate increases and stock market returns at the level of countries rather than individual companies, comparing the experience of 20 national stock markets during the period 2000 to 2016. He finds that the conventional theory does in fact hold at this level of analysis: When dividend payout rates increase in aggregate for an entire country’s market, stock market returns subsequently decline. This has valuable practical implications for investors considering global investing portfolios.TOPICS: Security analysis and valuation, developed %U https://pa.pm-research.com/content/iijpracapp/6/3/1.3.full.pdf