AbstractThis paper examines the impact of the repatriation tax provision of the Tax Cuts and Jobs Act (TCJA) on firms’ dividend policy. Our findings show that the firms most affected by the repatriation tax provision, that is, those with high foreign sales, reward shareholders by substantially increasing dividends per share, but maintain aggregate dollar dividends. Dividend per share (DPS) increasing firms repurchase at significantly higher magnitudes than non‐dividend per share increasing firms, suggesting that DPS increasing firms partially utilize repurchases to avoid substantial increases in their long‐term aggregate dividend commitments. We also investigate whether managers reap the rewards of dividend increases, finding that firms with high levels of executive ownership and foreign sales are more likely to increase their dividends per share after the TCJA was enforced. Overall, our results highlight the importance of the interconnection between dividends and repurchases in examining the response of firm payout policy to external shocks.