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Finance & Stock Groups Forum Index » Financial Planning » dividends vs. repurchases
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| Beliavsky |
 Posted: Wed Aug 08, 2007 12:49 am |
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http://www.chicagogsb.edu/capideas/aug07/4.aspx
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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