Disappearing and Reappearing Dividends

That the fraction of dividend paying firms decreased from the 1970s through the 1990s is well-documented. We first quantify the effect and show that about half was due to the increasing number of small and risky traded firms, and the other half was due to changing dividend elasticities. However, since 2000, the fraction of firms paying dividends has been increasing. Unlike the disappearing dividends phenomenon, the occurrence of reappearing dividends is almost exclusively attributed to changing dividend elasticity (not to changes in firms' characteristics). The time series changes in the dividend elasticity are driven by high- and mid-profitability firms, especially those with volatile earnings. Finally, although substitution of repurchases for dividends accounts for four-fifths of the changing dividend elasticity seen during the 1978-2000 period, it does not help explain the reappearance of dividends from 2000 on.