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G. DeSimone and A. Rotach: The Dividend Valuation Gap: Extracting Alpha from Options-Implied Yields

May 14, 2026

This paper examines the implied dividend gap, the difference between options-implied dividend yields and trailing realized dividend yields,  as a forward-looking predictor of stock returns. Using optionable U.S. dividend-paying equities from 2018–2026, the study finds that stocks with low implied dividend gaps significantly outperform high-gap stocks, generating an annualized long/short return spread of approximately 6.5%. By extracting risk-neutral dividend expectations from equity options, the paper shows that options markets embed forward-looking information about dividend growth and cut risk beyond traditional valuation measures. The results remain robust after industry neutralization and Fama-French factor adjustments, suggesting the implied dividend gap captures a distinct source of return not explained by standard risk factors.

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