Question

Suppose you were to look back over the last decade and identify firms that have increased dividends every year. You notice that these stocks outperformed the broader market over the decade as well. Does this violate efficient markets? Do you think that buying stocks based on past dividend growth will lead to above-average future returns?

Answer 1

Ans 1) In efficient market all information is shared with the all market participants. Since dividend increase is a new information and it is positive information it will impact the share price in positive way and share price of the company will increase. Thus it is not violated the efficient markets assumption.

As per the research of company is paying dividend every year and it is increasing there is chances of above average future returns. But one can't be certain because there are many other factors which impact the share price. One need to take care of other factors as well to be certain whether buying stocks based on dividend growth will lead to above average future returns. But if only dividend growth is the criteria than it will lead to above average future returns.