Purpose -The purpose of this paper is to compare the relative power of operating cash flow and earnings in the prediction of dividends. Design/methodology/approach -A linear mixed effects model is used in terms of selected model fit criteria. Findings -Based on the selected model fit criteria, cash flow per share is shown to produce a better fit than earnings per share, but it cannot be said how much better. Research limitations/implications -Quarterly CRSP and Compustat data from 2000 to 2006 for 1,902 dividend-paying firms are analyzed. Future work would need a different methodology to determine how much better cash flow is as a predictor of dividends. Practical implications -Both earnings per share and cash flow per share are found to be reasonable dividend predictors. Social implications -Additional insight is provided on modeling factors that contribute to a firm's decision to engage or disengage in a dividend payment policy. Originality/value -The study described in this paper continues work on predicting dividends per share. Results show cash flow per share is a better predictor than earnings per share. Investors and analysts predict dividends as part of their stock valuation work. This study suggests focusing attention on using cash flow per share as the predictor of dividends.

The market break of 2000 appears to have changed how companies perceive dividends. This study shows dividends appear to be more important during the post-2000 period. While some financial variables had significant relationships with dividends per share (DPS) over both pre-2000 and post-2000 periods, others such as current ratio, beta risk measure, and net profit had significant relationships with DPS in only one period. This knowledge may help investors improve decisions regarding dividend-paying firms.

Dividend stability is studied on 1,968 dividend paying firms using quarterly data from 2000 through 2005. Three groups are established: Group 1 (traditional) has firms that pay dividends every year which represents a stable dividend payment approach; Group 2 (irrelevance) has firms that stop paying dividends; and Group 3 (residual) pays dividends somewhat randomly (not annually). The residual policy group is the largest of the three groups and also is rewarded by investors with the highest growth rate in market to book value ratio in deciles. After investigating the underlying variables, it appears that larger firms tend to follow a traditional policy of stable dividends while smaller firms are more likely to follow a residual or irrelevance approach.

This paper examines relationships between four dividend payment patterns and firm size using seven relevant financial variables from prior studies. Growth rates on the means of these variables are obtained from CRSP using large sample (quarterly) data in the time span 2000 to 2012. The four dividend payment pattern groups represent traditional dividend theory, dividend irrelevance theory, dividend initiators, and a residual/catering theory approach. Results indicate that small firms following a traditional or a residual/catering payment pattern have been most attractive for investment purposes. Surprisingly, both small and large dividend initiators are not being rewarded by the market. Recommendations for future research are discussed.