The Changing Nature of Corporate Distributions and its Implications for Investors

U. S. firms have increased their use of share repurchases to distribute cash to shareholders since 1973, although the record is not uniform across industries and firm sizes. We utilize three measures of payout, and find that high payout portfolios significantly outperform low payout portfolios for each of these measures. However, the high payout portfolios based on the most comprehensive measure shows the largest excess performance, indicating the existence of a profitable trading strategy. When we compare the high payout portfolios to portfolios of stocks with zero payout, there is no difference in performance. If firms with zero payout policies have the greatest growth opportunities, and if firms with the highest payouts are the most profitable, then this could help account for the fact that the stock performance of the zero and high-payout firms is not significantly different