Reading: Introduction

Each year, firms return tremendous amounts of money to their shareholders. The following graph from Damodaran summarizes the cash distributions by U.S. firms over the years 1980 - 2013.

The main takeaways are:

• Total cash returned is more than 1.5 trillion per year (blue bars). This corresponds to roughly 5% of the market capitalization of all listed firms (red line).
• Cash payouts to shareholders dwarf the capital raised from shareholders. The net payout (payout - capital raised) amounts to more than 1 trillion per year (green bars). This corresponds to a cash return of approximately 3% (green line).
• High "dividend" yields: Put differently, the average stock pays a net cash "dividend" of approximately 3% of its value. 

The United States is not the only country with high corporate payout, as the following table (Source: www.dividend.com) shows for a slightly different time period as the previous graph:

Corporate payout decisions are therefore economically important and it is crucial for managers to understand their key characteristics and implications.