Corporate Payout Policy During the 21st Century

Abstract: As we analyze how payout policies have changed during the 20th and 21st century we find that the 21st century is characterized by a rapid increase in the average total payout ratio. We show that the most common payout policy for publicly traded U.S. firms is the combination of both dividends and share repurchase while only paying dividends has been the predominant choice of payout through most of the 20th century. While we show that dividend expenditures maintain a more steady level compared share repurchases, we also provide evidence that firms that distribute cash to their equityholders through share repurchase have higher volatility in earnings compared to firms with different payout policies. We associate different firm characteristics for firms with different payout policies and prove that a firm's size and profitability have a significant impact on both the dividend payout ratio and share repurchase ratio of a firm.