Keeley Teton Advisors

We are pleased to share with you our Semi-Annual Keeley Teton Dividend Tracker Report, outlining our thoughts on the universe of dividend-paying stocks.

In Summary:

  • We tend to see a bit more churn at the mid-year update because of the rebalancing of the Russell indices just before this time frame.
  • This year’s broad outperformance by dividend-paying stocks boosted the weight of dividend payers across all size and style subsectors.
  • During the first six months of 2022, more companies continued to raise their dividends and fewer companies cut or omitted them. It may be too soon to call this a trend with the current backdrop of the economy overall.
  • Special dividends: We have long viewed specials as an interesting way to return capital and share in this report observations from data over the last fifteen years.


The Dividend Universe


Russell Indexes reconstitutes their indices toward the end of June every year. This often changes the complexion of the index almost overnight, particularly as it applies to the Value and Growth sub-indices. The steep decline in the markets in the first half of the year further shuffles the deck, especially as it applies to Value and Growth. Both of these factors impacted the percentage of stocks within the indices paying dividends and the weight of the dividend-payers within the index.

  • Overall, the percentage of companies paying dividends remained fairly constant across all three capitalization ranges. We did see a significant increase in the percentage of companies paying dividends in the growth indices, while the propensity remained constant or fell a little in the value indices.
  • The reconstitution meant that 5%, 7%, and 15% of the stocks in the Russell Top 200, Russell Midcap, and Russell 2000 were new to the index. About 80% of the stocks entering the Top 200 pay dividends. This is above the 56% of stocks leaving the index that pay dividends and the overall propensity. In the Russell Midcap, only about one-third of the stocks entering pay dividends and it falls to 14% in the Russell 2000.
  • None of the companies that entered the indexes after their initial public offerings pay dividends. Within Midcap and the Russell 2000, 53% and 35% of the companies that were acquired paid dividends, roughly in line with their index representation.
  • Companies acquired were more likely to pay dividends than the overall index for midcaps and slightly less likely for small caps.
  • The biggest impact on the increased weighting of dividend payers within these indexes comes from the outperformance of dividend payers in the first half. We cover that 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 has now eclipsed pre-pandemic levels in all three market cap classes. With the economy appearing to slow, markets down, and consensus earnings estimates flattening out or falling, it will be interesting to see if this trend continues.
  • The column titled “Avg. Increase” presents the average increase of the companies raising their dividend, not all the dividend paying stocks. The average increase continues to benefit from some outsized increases due to recovery from dividend cuts that took place during the early days of the COVID pandemic. In addition, some very large increases, such as the 1600% increase by Occidental Petroleum continue to distort the numbers a little.
  • Cuts and omissions have fallen below pre-pandemic levels. The slight uptick in cuts and omissions we saw with large caps was due to dividend reductions at Exelon and AT&T after they completed spin-offs. It is not unusual for companies to reduce dividends after divesting of a significant part of the enterprise.
  • The percentage of companies paying dividends ticked up slightly in all three market cap ranges. In large caps, more dividend payers entered with the reconstitution. In small and mid caps, initiations helped.

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.

  • The combination of rising dividends and falling share prices pushed up dividend yields across the board.
  • Small cap dividend payers continue to yield more than midcap or large cap dividend-payers. They also yield much more the 10-year Treasury bond.
  • Yields rose about 40bps from six months ago; a little more for midcaps and a little less for large caps.
  • Dividend-paying stocks held up far better than non-dividend paying stocks in the first half. This benefit was particularly pronounced in large and midcap stocks. Also, the difference in returns between dividend-paying growth stocks and non-dividend-paying growth stocks was also wide.

Feature: What’s so special about special dividends?

Special dividends seem to be the Rodney Dangerfield of capital allocation tools; they “don’t get no respect”. Not many companies pay them and those that do usually do so inconsistently. That may be changing. Furthermore, it seems to us like an effective way to return capital to shareholders. For these reasons, we decided to look at special dividends over the years.

Our analysis uses the FactSet database to look at special dividends paid by companies in the Russell 3000 from 2007 through 2021. We analyze the payments of dividends of more than 6000 companies that were included in the index at some point during the time period. We wanted to understand how common special dividends are, what kinds of companies pay them, why companies pay them, and see if the stocks of companies paying special dividends outperform over time.

What are special dividends?

We view any dividend, in cash or in stock, that is over and above a company’s stated annual dividend as a special dividend. They arise from a variety of circumstances, both transient and sustainable, which is why they are relatively uncommon. Special dividends essentially reflect the management’s and Board’s view that a company has more capital than it needs and that it is prudent to return some of this capital to shareholders.

We segment special dividends into four broad categories: Bonus dividends, spinoffs, merger-related dividends, and other.

  • Bonus dividends are cash dividends paid by companies that find themselves with excess capital or excess earnings. The excess capital may have arisen from the sale of a business resulting in a one-time dividend or an accumulation of earnings that made management willing to shrink the capital base. Excess earnings refer to situations where a company like a real estate investment trust (REIT) or a business development company (BDC) is required to distribute ninety percent of its earnings and its regular quarterly dividend was not enough to hit that target so it paid a special dividend at year-end. Bonus dividends are the most common and are the likely to recur.
  • Spinoffs are special stock dividends comprising the ownership of one or more of a company’s businesses. This mechanism creates two public entities out of one and is a tool used by management teams to unlock hidden value and increase focus.
  • Merger-related dividends occur during the sale of a company. They could be the result of the structure of the deal or may be part of the consideration. For example, when Cadence Bancorporation merged with BancorpSouth in 2021, Cadence shareholders received a $1.25/share special dividend in addition to shares in BancorpSouth.
  • Other special dividends comprise a variety of unusual situations such as rights offerings, stock splits structured as the issuance of a share of a new class of stock, and liquidating dividends.

The table below breaks down special dividends by type.

Who pays them?

Among the 6,128 companies in our fifteen-year analysis, 782 companies paid 1,526 special dividends (multiple special dividends in one year count as one). These ranged from pennies per share to hundreds of dollars per share. As the table below presents, almost two-thirds of the companies paying specials over the period paid only one, but those companies account for only one-third of the total special dividends.

When we break down the companies paying special dividends, we see that about 30% of them were involved in spinoffs during the period and that very few of them undertook more than one spinoff. The other thing worth noting is that more than 70% of the companies that paid specials paid bonus dividends. This rises to 80% if we look at the number of specials paid.

When we look at what sectors pay specials, we see that more than half of companies paying special dividends and more than 63% of special dividends paid are in the Consumer Discretionary, Financials, and Industrials sectors. Consumer Discretionary and Industrials are boosted by spinoff activity that is higher than average, while Financials tend to see more Bonus special dividends.

When we look at trends in the payment of special dividends, we see some growth. It has not been steady, but the number of companies paying special dividends in 2021 was about twice as high as the number paying special dividends in 2007. If we exclude the spike in 2012, which was in part driven by a change in the taxation of dividends, the number of companies paying special dividends has remained fairly consistent over the last ten years. It seems to ebb and flow with overall trends in capital return to shareholders.

Finally, it is worth noting that about 80% of companies paying special dividends also paid regular dividends. Also, it is not surprising that companies paying special dividends are less likely to be unprofitable than the universe as a whole. What might be a little surprising is that they are a little less likely to be profitable than companies only paying regular dividends.

Why do companies pay special dividends?

We believe companies pay special dividends for one of two reasons. First, about 20% of special dividends are directly related to company transactions such as spinoffs and mergers. The balance are what we have referred to as Bonus dividends, where a company has elected to distribute cash as a way of returning excess capital to shareholders.

Companies pursue the former because they believe their shares do not reflect the sum of the parts in the business. Furthermore, they believe that the additional focus that can come from operating what used to be a division within the company as a standalone public company will create benefits that offset the additional public company costs. The decision at the board level is less one of dividend policy and more of a company strategy decision.

Bonus dividends, as we refer to them, are a capital allocation choice and we think there are three important factors to consider. First, in some cases companies must distribute a regulatorily defined percentage of earnings every year. REITs and BDCs operate under these rules. Because dividend rates are relatively sticky, these companies may earn more than they payout during the year and pay a final special dividend to meet the threshold. A company in this category that pays out end-of-year special dividends may be demonstrating that it under promises.

The second factor to consider is how has the company found itself in a position of excess capital. In some cases, companies sell operations that bring in cash and generate gains. If the prospects for swiftly reinvesting those proceeds are not promising, the Board has to decide how to reallocate that capital. The more interesting case is when a company generates excess capital in the normal course of business or capital needs change.

In either case, the third factor comes into play. Namely, how should the company reallocate capital. In some cases, paying down debt may be prudent. In the prior case where a company sold operations, it might wish to bring its debt down in line with the reduction in earnings. Assuming the company has sized its balance sheet correctly, it has a choice to return capital through either a special dividend or a share repurchase plan. With tax efficiency favoring share repurchases, why would a company pay a special dividend?

We see two very good reasons. First, smaller companies may be reluctant to repurchase shares because it would shrink the float and may reduce trading liquidity in their stock. Secondly, the stock may not be attractively valued.

Research shows that companies are more likely to repurchase shares when the business and the stock are performing well. Share repurchases dropped off a cliff in 2009 and did not recover for several years during the Global Financial Crisis. More recently repurchases dried up during the early quarters of the COVID pandemic. As an example, JP Morgan spent $6.4 billion repurchasing its stock at an average price of $128 in the first quarter of 2020. It spent $0 in the last three quarters of that year when the stock mostly traded below $100. In the second quarter of 2021, it spent $6.2 billion buying stock at an average cost of $157. In the second quarter of 2022, it spent 10% of that buying stock at $125 and recently announced it was suspending its repurchase program to build capital with the stock at $112. JP Morgan is widely regarded as being one of the best managed companies in the United States. If they cannot get the timing on repurchases correct, can lesser companies do so?

The problem is that companies have the most cash flow and capital to spend on buyback programs when their stocks are not bargains. In fact, they often do not have the flexibility to take advantage of weak stock prices by repurchasing shares because of real business constraints. As a result, repurchases may distort the capital allocation mandate of public markets.

Investors, on the other hand, can allocate money paid as special dividends by companies where current performance generates excess capital that might not be reinvested at attractive rates into companies where prospective returns appear more attractive. No one can guaranty that we would be successful enough in doing so to overcome the tax hurdle, but the optionality is also worth something. After all, if shareholders received cash spent on share repurchases as special dividends, they could use it to increase their stake in the company.

Do they matter?

As investors, we ultimately care most about whether we can gain any insight into the likelihood that a stock will outperform from companies’ decisions to pay special dividends. On this front, our work on special dividends appears promising. As the graph below illustrates, the cumulative return on an equally weighted portfolio of companies paying special dividends exceeded that of the Russell 3000 over the 2007-2021 time period. Companies that paid both a regular and a special dividend outperformed the index by a significant margin. They also outperformed the stocks of companies that paid only a regular recurring dividend.

When we look at the type of special dividend paid, we do not see a notable difference between types. They all have done well. The “5+” noted in the graph are companies that paid at least five special dividends during the fifteen years of the study. While we theorized that a most consistent payment of special dividends would be rewarded by investors, this was not the case.

We admit that the data is a little messy because some years have few observations and one stock can drive returns in the year. Also, past performance is not a guaranty of future results, but the evidence looks promising. Finally, there is the chicken and the egg problem in that we do not know if paying special dividends is a characteristic of companies that produce superior returns or a symptom of it. At the least, we can say that special dividends are not a negative and that they could be a positive.


It turns out that special dividends are kind of special. The strong performance generated by companies paying special dividends is probably worth more attention than it garners. The trick is to find the companies that will do so. On that score, companies that are already paying a regular dividend are a good place to start. If we add to that companies that have previously paid a special dividend and companies in a healthy balance sheet position, we have a starting point.