Keeley Teton Advisors

In this installment of the Keeley Teton Dividend Tracker, we provide our semi-annual update on the universe of dividend-paying stocks. With the Russell reconstitution complete in June and very little happening in either the IPO or M&A market, the composition of the indexes and the dividend-paying universe was little changed. Dividend-paying stocks continue to up their payouts and the yield on dividend payers increased despite second-half price gains. Dividend-paying stocks outperformed by a wide margin.

Our feature in this issue looks at how dividend payers performed in the last three recessions. We may or may not get one this year, but the probability of a downturn is up, and it is good to be prepared. We dig into the performance of dividend payers during tough economic times and investigate the performance difference between the stocks of companies that raised or maintained their dividends versus those that cut or omitted their payouts. We also look at factors that might predict what companies will cut. The short summary is that dividend payers have not always outperformed in periods of economic softness, but it pays to avoid the cutters anyway. Furthermore, several factors can help identify where more risk exists.


The Dividend Universe


Because Russell reconstitutes its indexes near the end of June, we typically do not see much change in the dividend universe in the second half of the year. Additions come from initial public offerings and spinoffs while deletions come from acquisitions and bankruptcies.

  • Overall, the number and percentage of companies paying dividends was little changed from six months ago. There were few IPOs to be added and acquisitions were less common as well. About two-thirds of the companies that were acquired in the Russell 2000 and half the companies acquired in the Russell Midcap did not pay dividends.
  • The increase in the weighting of the dividend payers in the three different indexes was mostly due to the outperformance of dividend payers in the second half of the year. We cover this in a later section.

Dividend Changes


Because dividend increases are often seasonal (companies raise their dividend the same time every year), we look at the year-over-year change in indicated dividend.

  • The percentage of companies raising their dividends is above pre-pandemic levels. It declined slightly in the Russell Top 200 and Russell 2000 but ticked up a little in the Russell Midcap.
  • Cuts and omissions remain stable at slightly below pre-pandemic levels for the Russell Top 200 and Midcap indexes but ticked up for the Russell 2000.
  • The percentage of companies paying dividends was flat for large caps but ticked down slightly for the Russell Midcap and Russell 2000 indexes.
  • The column titled “Avg. Increase” presents the average increase of the companies raising their dividend, not all the dividend paying stocks. It is heavily distorted by some very large outliers. For example, Cal-Maine Foods in the Russell 2000 increased its dividend by nearly 3900%. If we look at the median increase for those that increased their dividend, it is about 10% in each index. If we look at the median increase for all dividend payers, it is about 4% for the Russell 2000, 7% for the Russell Midcap, and 8% for the Russell Top 200.

Yields and Returns


The table above presents the simple average of the yield on the dividend-paying stocks within each index. The yield on the index is lower because not all stocks pay dividends.

  • Rising dividends and share prices led to little change in the yields in the large cap indexes but yields for the dividend payers in the Russell 2000 indexes increased slightly.
  • Dividend-paying stocks performed much better than non-dividend paying stocks even in a pretty healthy environment for stocks. Dividend payers outperformed in all size/style combinations.

Feature: Who cuts when times get tough?

A variety of indicators are flashing yellow on the economic outlook. The yield curve is inverted, and the ISM index has fallen below 50. While the job market remains strong and consumer and business balance sheets look good, the probability has risen that the US and global economies will experience a contraction in 2023. With that in mind, we looked at how stocks of dividend payers performed in the last three recessions. We want to answer three questions:

  • Did dividend payers outperform during recessions?
  • Did stocks of companies that raised or maintained their dividends outperform the stocks of dividend payers that cut or omitted their dividends?
  • What factors predict whether a company will cut its dividend?

We note that each of the three recessions we looked at exhibited significant differences. The 2000 recession started with the unwinding of a stock market bubble and dragged on longer due to the 9/11 terrorist attacks. The 2008-2009 downturn arose out of the collapse of the housing market and its impact on the financial system. The short 2020 recession came about due to the near shutdown of economic activity resulting from the COVID-19 pandemic. If we have a recession in 2023, it likely will resemble a more traditional recession brought on by an overshoot of the Fed’s efforts to cool an economy that was building up inflationary pressures. While the 2000 and 2008-2009 recessions were both preceded by a Fed tightening cycle, we believe the downturns were exacerbated by the need to cleanse the system of excesses. We do not see this to any great extent today, but we could be wrong.

We structure the analysis by looking at stocks in the Russell 2000, the Russell Midcap, and the Russell Top 200 indexes during the recessions in 2001, 2008-2009, and 2020. We looked at the stocks of companies in each index that were paying a dividend at the beginning of the quarter before the recession started and measured whether the companies cut their dividends over the next two years in the 2001 and 2008-2009 recessions and next three quarters in the case of the 2020 recession.

Dividend payers turned in mixed performance in the last three recessions

The performance listed is the average return of the stocks compared to their benchmark (Russell 2000, Russell Midcap, or Russell Top 200) in the cohort during the period. It is based on the stocks in the benchmark and their dividend status of those companies at the beginning of the period. This was 12/31/2000, 9/30/2007, and 12/31/2019 for the three time periods. The composites are equally weighted and not reconstituted or rebalanced. If a company was acquired or ceased trading due to bankruptcy during the period, the relative performance was calculated based on the period for which it existed. These factors explain why the relative performance for All stocks is not zero.


  • Small caps were more likely to cut dividends in two of the last three recessions. Large cap companies were the least likely to lower their payouts in all three downturns.
  • Dividend payers outperformed by a wide margin in the early 2000’s recession, performed in line during the Global Financial Crisis, and lagged badly in the pandemic recession.

Avoiding companies that reduced their dividends helped performance in almost all periods and for almost all size buckets

We used the same methodology to calculate the performance of the dividend payers as grouped by what happened to the dividend during the recession. The different sub-groups should be self-explanatory, but we characterized them according to the comparison between their dividend at the start date and end date.


  • Stocks of companies that raised their dividends outperformed all dividend payers during all three recessions and in all three capitalization buckets.
  • Stocks of companies cutting and omitting dividends performed worse than the overall market and the dividend-paying universe.
  • It does not look like there is a systemic difference in performance between those that cut and those that omitted.

Some characteristics seem to consistently help predict cutters

We looked at six different characteristics associated with a higher likelihood of a dividend cut. We group them into three categories: ability, willingness, and sector. The first three metrics (Payout, Debt/EBITDA, and Yield) gauge a company’s ability to sustain its dividend. The second two (Years Paid and Years Raised) assess a company’s past behavior. Our Sector analysis looks at what sectors showed a greater propensity to cut their dividend, and which had a greater ability to sustain them.


We calculated payout ratio using the indicated dividend at the beginning of the period divided by next year’s earnings (2001 for the first period, 2008 for the second, and 2020 for the third). N/A were companies that did not have EPS or FFO estimates.

  • Not surprisingly, higher payout ratios appear to be associated with higher rates of reducing dividends in the future.
  • Companies with payout ratios above 100% seem most vulnerable.


We calculated Net Debt/EBITDA as Debt minus cash divided by LTM EBITDA. N/A refers to companies without EBITDA estimates. Many of these were Financials which explains the high percentage of them to cut their dividends during the 2008-09 recession.

  • Higher Net Debt/EBITDA also correlated to a higher propensity to cut dividends.
  • Companies with this ratio over 4.0x had the highest percentage of reducers in every case.
  • We were a little surprised how many companies with net cash cut their dividends.


We looked at yield as a proxy for investors’ confidence in the sustainability of a company’s dividend with a higher yield expressing more doubt.

  • In most cases, companies that had dividends in the highest third of the dividend-paying universe saw higher rates of dividend reductions and omissions.


While most companies that cut dividends do so because they cannot sustain them, sometimes companies do not have a strong commitment to the dividend in the first place and decide to reduce or eliminate it when conditions become more challenging. For that reason, we looked at how many years a company paid a dividend in the prior eleven years and how often it raised it. Our reasoning is that companies with a long history of paying and increasing dividends would be more likely to continue that course. In addition, the fact that they have consistently paid (and raised) a dividend provides evidence of the sustainability of earnings in the business.

  • In general, we found that companies that paid dividends more frequently were less likely to abandon them during challenging times.


  • Raising the dividend more frequently looks like a stronger signal than paying the dividend more frequently.


We investigated whether some sectors were more likely to cut dividends than others. Is it as simple as “If the sector is economically sensitive, companies in it are more likely to cut dividends”? It appears that that is the case for sectors that holding less economic risk; they cut their dividends less frequently. Sectors with more economic risk tend to be more situational. In some downturns they cut more frequently, while in other downturns they sustained dividends better.

  • Dividends in the Consumer Staples, Health Care, and Utilities hold up better in times of stress.
  • Consumer Discretionary has the worst record of maintaining dividends.
  • Real Estate has been a disaster in the last two downturns.
  • Cyclical sectors Industrials and Materials look better than we would have expected.
  • Financials, generally considered to be cyclical, performed a little better than average in downturns that were not the Global Financial Crisis. It was a disaster in that period.


To wrap up, we go back to the three original questions.

  • Did dividend payers outperform during recessions?

Not always but given the differences between the three recessions we analyzed, we think we have a good argument for why they will in the recession that may be brewing.

  • Did stocks of companies that raised or maintained their dividends outperform the stocks of dividend payers that cut or omitted their dividends?

Almost always.

  • What factors predict whether a company will cut its dividend?

Companies with high leverage, high payouts, or high yields proved more vulnerable to dividend cuts and omissions. Companies with a history of paying and raising their dividends sustained payouts more often. The Defensive industries (Staples, Health Care, and Utilities) played good defense while Consumer Discretionary and Real Estate cut more frequently.