Cash dividend payment and EPS Performance Insights: Evidence from Selected Standard and Poor Economic Sectors in Time-Series Approach

Abstract

Introduction: Earnings per share (EPS) as performance measure and its effect on cash dividend payments has become a topical issue in both developed and developing countries.

Objectives: This study examines how earnings per share (EPS) performance affects cash dividend payments in the Standard and Poor 500 (S&P 500) economic sector.

Methods: Employing a sample of four S&P 500 economic sectors with quarterly time-series data of the US stock market spanning from 2008Q1 to 2023Q3 using a dynamic Autoregressive Distributed Lag (ARDL) bounds testing research design and the Granger Causality test.

Results: The study demonstrated that the S&P 500 economic sectors with higher EPS performance better sustain cash dividend payments, in line with investor awareness theory. The positive EPS growth of the financial (FNCL), industrial (INDL), energy (ENGY), and information technology and communication (INCA) sectors shows a notable commitment to cash dividend payments over short- and long-run periods, consistent with signaling theory. Further, the spectroscopy fit peaks result affirms that financial activities significantly contribute to earnings growth capacity to support shareholders’ cash dividend expectations.

Conclusions: This study provides important insights, as it acknowledges that the contribution of EPS by the S&P 500 economic sectors of least return has specific prospects to pay dividends to shareholders.