“Firm size matters: Industry sector, firm age and volatility do too in determining which publicly-listed US firms pay a dividend”

Abstract

The objective of this paper is to refute the claim that the propensity for listed US firms to pay dividends remains in decline. We find that almost half of all publicly listed US companies are dividend-payers at the end of 2016, even excluding non-operating companies and financials; the percentage of ‘payers’ is double the rate at the start of this century as noted by Fama & French (2001). Firm size (market value) appears to be the dominant predictor of whether a firm pays a dividend or not, followed by industry grouping, age and relative volatility. Over the last two decades, the number of listed US stocks has halved, as M&A activity outpaces new IPOs. The US listed market is now bifurcated between large-cap ‘older’ firms that typically pay dividends, and smaller-cap ‘younger’ non-payer firms, mainly dominating the Health Care industry. We also find that one-third of surviving stocks at the end of 2016 have posted negative annual geometric returns since their original listing, and that 90% of these loss-making stocks are ‘non-payers’.