To further illustrate the second observation,Figure 1 shows the evolution of dividend yield (total dividends over market value of equity),repurchase yield (repurchases over market value of equity)and payout yield(dividends plus repurchases over market value of equity)since the early 1970s.Whether we examine repurchases relative to earnings or to the market value of the firm,it is clear that repurchases as a payout method were not a factor until the mid-1980s.It is interesting that in the 1990s,firms'average total yield remained more or less constant while the dividend yield declined and the repurchase yield increased. The third observation is that dividends are now being paid by fewer firms.As we can see in Figure 2,Fama and French (2001)show that the proportion of firms that pay dividends (among all CRSP listed firms)has fallen dramatically over the years,regardless of their earnings level.Prior to the 1980's firms that initiated a cash payment usually did so with dividends.But since the beginning of the 1980s,most firms have initiated cash payments with repurchases. Figure 3 documents this observation for U.S.industrial firms.We define a cash distribution initiation as the first time after 1972 that a firm pays dividends and/or repurchases shares.Figure 3 shows that the proportion of firms that initiated a cash distribution by using only share repurchases increased from less than 27%in 1974 to more than 81%in 1998.Share repurchase programs have now become the preferred method of payout among firms initiating cash distributions to their equityholders.(For earlier evidence on trend in repurchases see Bagwell and Shoven,1989) The fourth observation is that individuals pay substantial taxes on the large amounts of dividends that they receive.We collected information from the Federal Reserve's Flow of Funds Accounts for the United States,and from the IRS,SOI Bulletin about total dividends paid and the amounts received by individuals and corporations for the years 1973-1996.Table 2 presents 8To further illustrate the second observation, Figure 1 shows the evolution of dividend yield (total dividends over market value of equity), repurchase yield (repurchases over market value of equity) and payout yield (dividends plus repurchases over market value of equity) since the early 1970s. Whether we examine repurchases relative to earnings or to the market value of the firm, it is clear that repurchases as a payout method were not a factor until the mid-1980s. It is interesting that in the 1990s, firms’ average total yield remained more or less constant while the dividend yield declined and the repurchase yield increased. The third observation is that dividends are now being paid by fewer firms. As we can see in Figure 2, Fama and French (2001) show that the proportion of firms that pay dividends (among all CRSP listed firms) has fallen dramatically over the years, regardless of their earnings level. Prior to the 1980’s firms that initiated a cash payment usually did so with dividends. But since the beginning of the 1980s, most firms have initiated cash payments with repurchases. Figure 3 documents this observation for U.S. industrial firms. We define a cash distribution initiation as the first time after 1972 that a firm pays dividends and/or repurchases shares. Figure 3 shows that the proportion of firms that initiated a cash distribution by using only share repurchases increased from less than 27% in 1974 to more than 81% in 1998. Share repurchase programs have now become the preferred method of payout among firms initiating cash distributions to their equityholders. (For earlier evidence on trend in repurchases see Bagwell and Shoven, 1989) The fourth observation is that individuals pay substantial taxes on the large amounts of dividends that they receive. We collected information from the Federal Reserve’s Flow of Funds Accounts for the United States, and from the IRS, SOI Bulletin about total dividends paid and the amounts received by individuals and corporations for the years 1973-1996. Table 2 presents 8