Recent financial literature suggests that the variation in the dividend–price ratio is significantly related to the expected returns but not to the expected dividend growth. In other words, stock returns are predictable but dividend growth is not. However, most of this evidence comes from the U.S. at the aggregate level, and there is a lack of research that relates to this topic in the New Zealand stock market. This research examines the predictive power of the dividend–price ratio using New Zealand stock market data from 1931 to 2012. The results confirm the claim in the U.S data that returns are predictable but dividend growth is not in the New Zealand stock market data. This research also investigates whether the return predictability is associated with risk-pricing or mispricing; whether the return predictability is due to the fundamental relationship among the dividend–price ratio, future returns and future dividend growth, or whether it is due to the effects of historical events; whether out-of-sample forecasts will have the same patterns as in-sample predictions; and whether individual company returns are predictable.