Flush markets, easing rates, and shifting tax incentives are driving a surge in dividend recapitalizations—an increasingly popular way for companies and private equity firms to return capital, even as legal scrutiny intensifies.
As the 2025 financial year approaches its end, more companies announce dividend distributions and dividend recapitalization (also known as dividend recap) as part of their strategies to return value to investors, improve market performance, and capitalize on favorable tax and compliance conditions that may change in the coming years.
“By mid-2025, the average dividend recapitalization had reached $350 million, with a total of $21 billion distributed through this method—a significant jump from the year before,” wrote Cyril Demaria-Bengochea, Head of Private Markets Strategy at Julius Bär, in a company blog post.
Several factors underpin the recent expansion of dividend recapitalization in global markets.
First, very strong performance in financial markets over the last two years has added significant cash to many public companies. As some predict a decline in global markets, the timing calls for returning value to investors through dividends.
Second, companies face significant pressure from existing investors to act. Private equity funds, more specifically, use the dividend recap path to cost-effectively distribute capital to investors where other potential liquidity events are down.
Also, the recent moderate decline in interest rates enabled funds to refinance their portfolio companies, taking cheaper loans to finance dividend distributions.
Finally, the current tax and regulatory environment encouraged companies to distribute such dividends at lower tax rates than on income. This policy may change in the coming years. However, the Big Beautiful Bill Act introduced more favorable tax provisions for investors, especially regarding their business taxable income and related R&D expenses.
A Broad-Based Trend, With Legal Guardrails
The dividend recapitalization trend has been across the board so far, covering all sectors and geographies. DarkTrace, a British cybersecurity company, executed its dividend recap plan. Power equipment company Aggreko offered debt to partially finance the payment to its shareholders earlier this year.
Yet, it is important to note that dividend recapitalization may raise legal and other concerns. The trend could also lead to a growing demand for solvency opinions in this space. Almost all such transactions involve banks specializing in fairness and solvency opinions, designed to show that the companies are solvent and that dividend distributions do not harm the existing shareholders’ pool.