The Dog Has Barked for a Long Time : Dividend Growth Is Predictable

Motivated by the Campbell-Shiller present-value identity, we propose a new method of forecasting dividend growth that combines out-of-sample forecasts from 14 individual predictive regressions based on common return predictors. Combination forecast methods generate robust out-of-sample predictability of annual dividend growth over the entire post-war period as well as most sub-periods with out-of-sample R2 up to 18.6%. The dividend-growth forecasts coupled with the dividend-price ratio also significantly forecast annual excess returns with out-of-sample R2 up to 12.4%. In spite of robust dividend predictability, we find that most variation in the dividend-price ratio is still attributable to variation in expected returns