Disappearing and Reappearing Dividends

Abstract

We decompose the decrease (1970s-2000) and subsequent recovery (2000-current) in the percent of dividend-paying firms. Changes in firm characteristics and the proclivity to pay dividends (probability of paying dividends conditional on characteristics) each drive half of the dividend disappearance. By contrast, a higher proclivity to pay dividends drives 82% of the reappearing dividends. The remaining reappearance is driven by a single characteristic: reduced earnings volatility. Firm characteristics change because of low-profitability and high-earnings-volatility firms, whereas proclivity changes because of stable, profitable firms. Rather than dividend initiations or omissions, newly listed and delisted firms drive trends. Finally, the magnitude and duration of disappearing payout (dividends+repurchases) is substantially smaller than that of disappearing dividends, indicating some substitution between dividends and repurchases.