Dividend Growth & Return Predictability: A Dynamic Approach

Dividend yields are a determinant of asset prices, but changes in dividend growth impact both dividend yields and discount rates. As a result, dividend growth is typically treated as a known constant in most of the literature.

In this paper, we develop a dynamic approach to forecasting dividend growth using Bayesian filtering techniques, which improves markedly on standard linear methods. The resulting growth-adjusted dividend yield improves out-of-sample return predictions by several orders of magnitude. These results show that dynamic cash flow modeling can significantly improve the performance of expected return models.

2016 EDHEC-Risk Institute Research Insights

This special supplement of IP&E highlights the findings of new research on infrastructure investments that were presented at EDHEC-Risk Days 2016.

Drawing on research from the Meridiam/ Campbell-Lutyens research chair at EDHECinfra, we analyse the characteristics of cash flows in private infrastructure firms and find that infrastructure firms exhibit a truly unique business model compared to public and private rms. The equity payout behaviour of infrastructure firms is very different from that of other firms: infrastructure firms pay more often and in significantly higher proportions of their revenues than other firms once the lifecycle of the rm is taken into account. We conclude that infrastructure firms have significantly lower volatility of revenues and profits and pay a much higher proportion of their revenues much more frequently to their owners, independent of the business cycle.

On the subject of the cash flow dynamics of private infrastructure project debt, as part of the Natixis research chair at EDHECinfra, we produce new results using a new infrastructure cash ow database. We show that a powerful statistical model of credit ratio dynamics provides insights for the valuation of private credit instruments in infrastructure project nance. It also militates for standardising the data collection and computation of items such as the debt service cover ratio in infrastructure project nance, and for pooling this information in central repositories where it can be used to create the investment metrics that investors need (and regulators require) to be able to invest in large, illiquid assets such as private infrastructure project debt.

Revenue and dividend pay-outs in privately-held infrastructure investments: Evidence from 15 years of UK data

In this paper drawn from the EDHEC/Meridiam/Campbell Lutyens Research Chair, and using the largest database of infrastructure cash flows available for research, we compare the revenues, profits and dividend pay-out behaviour of infrastructure and non-infrastructure firms in the UK. The paper addresses two main questions: do infrastructure firms correspond to a different business model than other firms active in the economy? And do infrastructure firms exhibit a different equity pay-out behaviour than other firms?