Disappearing and Reappearing Dividends

Monetary Policy and Reaching for Income

“…A possible reason is that, for some firms, it is costly to change their dividend payout policy; see, for example, Lintner (1956). The finding that low interest rates induce firms to initiate dividends also provides a possible explanation for the reappearing dividends after the 2000s, as documented by Julio and Ikenberry (2004) and Michaely and Moin (2020). Miller and Modigliani (1961) show that rational investors should be indifferent between current income and capital gains.…”

“…Third, a low interest rate can induce firms to initiate dividends to cater to income-consuming investors. This result suggests that the low-interest-rate environment that began in the 2000s could help explain the "reappearing dividends" in the same period (Julio and Ikenberry (2004), Michaely and Moin (2020)). Fourth, we show that an ultra-low-rate policy like those in Europe and Japan has made bonds less attractive relative to a wide range of stocks in terms of income yields.…”

The evolving relation between dividends and flexible payouts: A different evolution

“…Several papers find that the decline in the proportion of companies that pay a regular dividend can be explained in part by changes in the characteristics of listed companies (DeAngelo et al, 2006;Fama & French, 2001;Hoberg & Prabhala, 2009;Michaely & Moin, 2019; Section 2 for United Kingdom and international studies). The proportion of early-stage companies with negative or low earnings increases over time, and such companies would not be expected to pay regular dividends, according to the life-cycle theory of dividend policy.…”

“…However, it appears that much of the cross-country difference in the proportion of regular dividend payers (Section 5.1) is attributable to differences in the characteristics of listed companies. For the United States, the predicted proportion of firm-years with dividend payment reaches a low of around 45% in the late 1990s, and stays below 50% in the 2000s and 2010s (Fama & French, 2001, p. 24;Michaely & Moin, 2019, Table 2). The predicted proportion for the United Kingdom is more than 40% points higher in 1998, and remains 25-30 points higher in most subsequent years.…”

“…In the United Kingdom a shortfall of dividend payers appears in the late 1990s, nearly 20 years later than in the United States, reaches over 20% points by 2005, and shrinks gradually in the 2010s. In the case of the United States, much or all of the shortfall can be explained by the choice of some companies to pay out via repurchases only, rather than dividends (Grullon & Michaely, 2002;Michaely & Moin, 2019;Skinner, 2008). However, repurchases are not the main explanation for the UK shortfall.…”