Special Dividends

What do I think of special or one-time dividends?

Not a fan.

I get why companies are doing it right now, obviously they’d prefer to pay themselves and fellow shareholders at a lower tax rate and we really have no idea what the tax rate may be in 2013. Right now it’s 15% but next year it could go as high as ordinary income. I suspect it ends up closer to 20% but I have no way of knowing that for sure, nor does anyone else. And so as a byproduct of the uncertainty (god I hate that word already), corporations with excess cash and ongoing plans to return it to shareholders are opting to speed that up.

The benefit, other than the locked in tax rate, is nil. The stock declares the special dividend record date and pay date, the share price adjusts accordingly before and after (ex-dividend) and that’s the end of it. Microsoft’s tried these a few times in an attempt to boost its share price, it never worked. Large shipping companies were doing these in the mid-aughts but shareholders were always suspicious of them – those suspicions turned out to be well-founded in the case of now-bankrupt General Maritime and others.

Eddy Elfenbein has more on the current special dividend boom, read below:

The Special Dividend Rush (Crossing Wall Street)