A Special Dividend Trend

12/06/2012 11:15 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

MoneyShow's Jim Jubak discusses what he sees is a new trend in special dividends as companies try to beat a potential tax increase on dividends next year.

Well folks, I think we have a trend in special dividends. These are dividends that companies are announcing in the fourth quarter, big payouts to beat the potential increase in the tax rate on dividends that might happen in 2013 if the tax rates go back to where they were from the low rate on dividends.

We're seeing a lot of companies either move the dividends forward-or even better from a shareholder's perspective, announce a special dividend maybe-to pay out a good percentage of what they might pay out anyway in 2013 in 2012, so people pay lower tax rates.

How big is this trend? Well, the average for special dividends in the fourth quarter is around 31. We're already at 103, and on trend we're looking at about 130 or so. So almost 100 more, about a 300% increase from the average rate.

If you're looking for companies that are sort of candidates to do one of these things, a lot of them are coming in companies with big concentrations of insider or family ownership. Walmart (WMT) did one so all of the Walmart heirs, which own a big hunk of Walmart stock, will get their dividend in December rather than in January or February. Companies like that are doing it.

But you're also seeing a lot of companies just jump on the band wagon because it's a way to illustrate that you are shareholder friendly. Costco (COST), for example, just announced a $7 a share dividend. This is a $100 stock, so keep that in perspective...we're talking about 7%.

It's a $7 a share special dividend payable to shareholders of record on December 10 payable on December 18. That looks like just sort of an effort to re-jigger the books a little bit and to demonstrate they're shareholder friendly and maybe get some more investors and all of that.

We've got a trend. I think the trend has become a bandwagon. We're seeing a lot of companies jump on, and we're still not even fully into December, so there is still a fairly large hunk of the calendar to do.

I think we're likely to see way more than even the trend of 130, as more companies decide they want to issue special dividends, because that's what investors are looking for in the very, very, very short term.

Related Reading:

Income Investing in a 2013 World

Income Investors: Beware the Bubble

Slow and Steady Wins the Dividend Race

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