Principles of Corporate Finance_ 12th Edition

Chapter 16 Payout Policy 411

bre44380_ch16_410-435.indd 411 10/05/15 01:41 PM

Corporations pay out cash by distributing dividends or by buying back some of their outstand-
ing shares. As Figure 16.1 shows, repurchases were rare in the early 1980s, but the total value
of repurchases in the U.S. is now similar to total dividends. Companies sometimes buy back
huge amounts of stock. In 2014, Apple bought back $56 billion of stock, IBM bought back
$14 billion, and Exxon Mobil $13 billion.
The fraction of companies that pay dividends has decreased from 48% in 1980 to 31% in

2013.^1 Some companies used to pay dividends, but then fell on hard times and ceased to do
so. However, most non–dividend payers are young growth companies that have never paid
a dividend and will not pay one in the foreseeable future. These zero-dividend companies
include such household names as Berkshire Hathaway, Amazon, and Google, as well as a
multitude of smaller growth firms.
Here is a table of payout practices for U.S. firms from 2003 to 2013:

BEYOND THE PAGE

mhhe.com/brealey12e

The growth in

repurchases

BEYOND THE PAGE

mhhe.com/brealey12e

How companies

pay out

16-1 Facts About Payout

Pay Dividend?

Ye s No

Repurchase? Ye s 15.2% 11.2%

No 18.3% 55.3%

On average in each year 15.2% of the firms paid a dividend and also repurchased shares.
The fraction that paid dividends but did not repurchase was 18.3%. The corresponding frac-
tion for repurchases but no dividends was 11.2%. But 55.3% of firms did not pay dividends or
repurchase shares.

(^1) The declining use of dividends is documented in D. J. Skinner, “The Evolving Relation between Earnings, Dividends, and Stock
Repurchases,” Journal of Financial Economics 87 (March 2008), pp. 582–609. In Europe the decline in dividend payers has been
particularly steep in Germany. See D. J. Denis and I. Osobov, “Why Do Firms Pay Dividends? International Evidence on the Determi-
nants of Dividend Policy,” Journal of Financial Economics 89 (July 2008), pp. 62–82.
◗ FIGURE 16.1 Dividends and stock repurchases in the United States, 1980–2013 (figures in $ billions).
Source: Standard & Poor’s Compustat.
0
200,000
19801982198419861988199019921994199619982000200220042006200820102012
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
$ millions
Dividends
Repurchases