dividends vs. repurchases

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The Dividend Puzzle: A New Generation of Firms Replaces Dividends with Stock Repurchases by Douglas J. Skinner University of Chicago Graduate School of Business

"Over the last 30 years, corporate payout policy - a firm's policy for paying dividends and making stock repurchases - has changed significantly as earnings have become more volatile. A new study links the increased variation in reported earnings to changes in corporate payout policy, finding that stock repurchases are now being used as substitutes for dividends even for firms that continue to pay dividends."

An implication of this research is that a strategy followed by some retirees of only buying dividend-paying stocks and of spending only dividends is sub-optimal. They should be willing to own both dividend and non-dividend payers and to sell shares periodically. What matters is the spending rate, and rate of return, and its volatility, not how the return is distributed between capital gains and dividends.

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Beliavsky
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