Abstract
Because cash dividends no longer appear to be a complete measure of corporate distributions, tests of dividend irrelevance based on cash dividends may not be well specified. We compare the performance of long/short investment strategies based on portfolios of high, low-, and zero-payout firms and on each of three measures of corporate distributions. The strategy with the highest risk-adjusted returns is long in high-payout/short in low-payout stocks formed on the basis of the most comprehensive measure of payout, including dividend yield, and net share repurchases. We show that corporate profitability and investment opportunities are significantly associated with firms' payout policies, and this helps explain the relatively strong performance of the zero-payout stocks.