Keeley Teton Advisors

Our second installment of the Keeley Teton Dividend Tracker finds continuing improvement in the universe of dividend-paying stocks. While the percentage of stocks that pay dividends has not increased, the payers are paying more. Furthermore, performance of the dividend payers improved nicely and outpaced that of the overall universe. Our feature in this publication looks at the differences between the companies that pay dividends and those that do not. The research we conducted before we launched the Keeley Small Cap Dividend Value Fund in 2009 suggested that this was a higher quality group of companies, and this update confirms this conclusion. If we are entering a period of higher rates, we think that this bias will more than offset concerns that “bond proxies” will fall with the bond market.

The Dividend Universe


With the annual Russell reconstitution complete at the end of June, changes in the index in the second half of the year are the result of additions due to IPOs and deletions due to acquisitions. In the second half of 2021, additions outstripped deletions due to a strong IPO calendar.

  • The percentage of companies paying dividends remained fairly constant across all three capitalization ranges and styles.
  • The percentage of dividend payers in the Midcap index remained steady and picked up significantly in the Midcap Growth index.
  • The propensity to pay dividends among the stocks added to the indices was low. Within the Russell 2000, only five of the 108 stocks added paid dividends. In the MidCap and Top 200 indices the ratios were 1/20 and 0/2.
  • Companies acquired were more likely to pay dividends than the overall index for midcaps and slightly less likely for small caps.
  • We continue to see that larger companies are more likely to pay dividends in the Russell 2000 and Russell MidCap indices, and less likely in the Russell Top 200. This is shown by the fact that the weight of the dividend payers in the index is higher than the percentage of companies paying dividends.

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 reached, and then surpassed, the levels we saw pre-pandemic in the second half of 2021.
  • Cuts and omissions have also dropped below pre-pandemic levels and we did not see a single cut or suspension among large-cap companies in the last six months.
  • While the lack of reductions, the rebound in increases, and the strong pace of initiations are all positives, the percentage of companies paying dividends was stable. The offset is that companies entering the index through their initial public offering have a low propensity to pay dividends. Part of this may be timing and the companies will eventually pay dividends. The bigger factor is that almost half of the new IPOs were in biotechnology, and they are unlikely to ever pay a dividend.
  • The column titled “Avg. Increase” presents the average increase of the companies raising their dividend, not all the dividend paying stocks. If we include companies that held their dividends constant and those that cut them, the average change falls to 4% from a year ago. The “Average Increase” can also be impacted by some outliers. For example, health insurer Cigna increased its dividend from $0.04 per year to $4.00, a 9900% increase!

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.

  • Small cap dividend payers continue to yield more than midcap or large cap dividend-payers. They also yield much more than the 10-year Treasury bond.
  • Yields rose slightly for small caps and value stocks but were otherwise stable as dividend increases kept pace with share price appreciation.
  • For the first time in a while dividend-payers produced better returns than non-dividend-payers. Interestingly, the dividend-paying growth stocks did better than the dividend-paying value stocks in the smaller capitalization ranges, even though value stocks outperformed in these equity classes.

Feature: What’s the difference?

According to data from, investors hold more than $250 billion in 44 different ETFs that focus on dividend-paying US stocks. We estimate that 97% of this is held in funds with a large-cap or a total market focus. Indeed, there are only six funds with total assets of about $7.5 billion focused on small- or mid-cap stocks. It seems that we are not the only ones that like the potential for better returns by investing in companies with more implied earnings consistency, conservative financial positioning, and a focus on rewarding shareholders, three characteristics that we believe come with a dividend focus. We have argued in the past that small- and mid-cap dividend payers may be a better diversifier compared to other smaller company universes than investors would get with a large-cap dividend fund. Our logic was based on the observation that we thought it would be difficult for the large-cap dividend universe to be much different than the overall market of large-cap stocks because so many large companies pay dividends. We decided to test out that hypothesis by comparing the dividend universes within the Russell 2000, Russell MidCap, and Russell Top 200 indices to the overall index. We cover the findings in the pages that follow, but the quick conclusion is that we were correct in our belief that there are broader differences as you migrate further down in market cap, but it seems that even the large cap dividend payers do have some meaningful differences from the overall universe of large-cap stocks.

We looked at the differences between the dividend payers and the overall universe of stocks as well as the non-dividend payers. We cut the data on both size and style, and we looked at differences along economic sectors, size, profitability (or lack thereof), valuation, and stock price volatility.

Economic Sectors


The tables above show the breakdown of the Russell indices according to whether they pay dividends. We also included a table breaking down these same indices into their growth and value components.

  • The point of showing the latter breakdown is to show how the dividend-paying universes look similar to the value universes for small and mid-cap stocks.
  • Large caps are distorted by the megacap technology stocks. In the non-dividend paying part of the Russell Top 200, Alphabet represents 19% and Meta Platforms represent 19% and 9% of the 36% Communications Services weight. Amazon accounts for 17% and Tesla makes up 10% of the Consumer Discretionary weight. Berkshire Hathaway is almost all the weight of non-dividend-paying Financials. In the dividend-paying part of the Russell Top 200, Apple represents 11% and Microsoft is 10% of the Technology weight.
  • Another way of looking at this is to look at the propensity to pay dividends. Namely what percentage of the sector’s capitalization is in dividend paying stocks?
  • As shown above, the likelihood a company will pay dividends increases as the size increases. That should hardly be surprising, but some of the differences are larger than we might have expected. In Health Care and Technology, it is really unusual for smaller companies to pay dividends, even though larger companies in the sector have a higher-than-average propensity to send you a quarterly check.
  • Conversely, there are some sectors where there is not much difference between size cohorts. Financials, Real Estate, and Utilities are uniformly high, while Communications Services and Consumer Discretionary are low in all size buckets.



  • Dividend payers are generally larger than non-dividend payers with the largest difference being in the smallest companies. The large caps measures for the large caps are distorted by some of the big technology companies.



  • Not surprisingly, non-dividend payers are expected to grow more rapidly on the top and bottom line than are dividend payers.
  • Some of this can be explained by the make-up of the different universes. For example, Financials represent almost a third of the weight of dividend payers in the Russell 2000 and earnings are likely to be down for most banks in 2022. Secular growth industries also account for more of the weight of non-dividend payers.
  • Some of this must be taken with a grain of salt because such a large percentage of companies that do not pay dividends do not make money.



  • Almost all companies that pay dividends are also profitable, whereas many companies that do not pay dividends also do not produce earnings.
  • This creates some challenges when trying to evaluate relative return on equity between the two groups. As the table illustrates, small- and mid-cap companies that pay dividends are more profitable.
  • If I exclude the unprofitable companies, the ROE for the non-dividend payers jumps to 15.2% in the Russell 2000 and 18.6% in the Russell MidCap.



  • From an overall standpoint, companies that pay dividends look a bit more levered than their non-dividend paying peers.
  • Because of differences between the sectors that make up each universe, that is probably true, but it does not tell the whole story. All REITs and utilities and most financial services companies are levered by design. Their higher weights in the dividend universe push the equity/asset ratio lower. If we adjust for this, and for companies that lose money (because most must be unlevered by necessity), the leverage looks pretty even.



  • The differences between betas for dividend-paying stocks and non-dividend paying stocks were narrower than we expected, particularly for those in the Russell 2000.
  • On the other hand, the difference between the standard deviation of dividend-paying stocks and non-dividend payers is very wide. This suggests that there are a lot of volatile, but not highly correlated stocks that don’t pay dividends. As correlations generally rise during periods of stress, this may be why stocks of companies that pay dividends hold up better in down markets.



  • When we look at valuation using price/earnings ratios we see that dividend payers trade at a big discount to non-dividend payers, regardless of capitalization bucket. It is also worth noting that this excludes companies losing money.
  • Earnings yield gives us a way of including unprofitable companies in a meaningful way. This widens the gap between the two universes.


In studying the differences between dividend-paying stocks and the overall universe, we wanted to understand two things. Are dividend-payers different? Are they better?

The answer to the first question is definitely Yes!

  • Even with large caps. Most of the difference in large caps comes from the fact that five of the ten largest companies which represent 16% of the overall weight of the Russell Top 200 do not pay dividends. These are mostly market leading companies with fairly volatile stocks (Amazon, Alphabet, Tesla, Meta Platforms, and Berkshire Hathaway). As a group, they drive differences between the characteristics of the dividend payers and the Russell Top 200 itself. A fund investing only in dividend-paying large-cap stocks essentially bets against these companies if it is trying to beat the index.
  • With mid-cap stocks, we begin to see more systemic differences because no single stock represents a large part of the index. Because only two-thirds of the companies pay dividends, the difference between the Russell MidCap and the dividend-payers within it can be large. We see significant differences between sectors and valuation.
  • Small cap stocks in the Russell 2000 exhibit the greatest variance from the core index. Part of this is because less than half of them pay dividends. But the differences go deeper. The sector weightings are very different, the growth rates are different, and the valuations are different. We think many of these differences arise from the fact that almost 30% of the companies in the Russell 2000 are unprofitable, while only 3% of the dividend-payers in the Russell 2000 do not make money. This feeds into a lot of the other metrics.

Are dividend-paying companies better? We admit the evidence is more mixed on this question. Non- dividend payers are expected to grow revenues and EPS faster across the market cap spectrum. While we measured only 2022 expectations vs. 2021 actuals, we suspect that group consistently posts superior growth. The caveat is that it is difficult to evaluate a group when you exclude 44% of its members. Dividend payers show better in valuation, profitability, and valuation. They appear similar in leverage.

In conclusion, we see both diversification potential and a quality bias arising from a focus on dividend- paying stocks.