Special Dividends to Spike Prior to Fiscal Cliff

Special dividend announcements are expected to spike this year prior to expiration of many of the existing tax cuts and before new taxes set in next year. While the one-time dividend is not a new thing to investors, it’s usually pretty rare and gets quite a bit of attention. Recall Microsoft’s special dividend of $3 per share back in 2004 when the amount of cash on its books was becoming too much for investors to swallow. Well, since investors in the top bracket could see their taxes on dividends roughly triple next year, (as well as many corporate executives!), expect to see a spate of special dividend announcements this year.

Special Dividend Announcements in 2012

So far this year alone, with months to go, we’ve already see the following one-time dividend announcements, which are outside the normal dividend cycle and magnitude:

AOL announced in August a massive $1.1 Billion special dividend (source).
Sycamore Networks announced a massive $10 special dividend as part of its recent earnings announcement (source). The stock moved 7% on the news.
Fisher Communications announced a whopping special dividend of $10 per share (source).
DSW announced a $2 per share special dividend (source).
American Eagle Outfitters announced a $1.50 special dividend (source).
Choice Hotels International announced a $10.41 special dividend earlier this summer (source).

There are many more to come surely. Naturally, this makes one wonder whether it’s worth buying some of these stocks prior to ex-dividend, or even prior to announcements in anticipation of special dividend payouts prior to the looming fiscal cliff. It may be difficult to cherry-pick stocks likely to make such announcements, but dividend ETFs are certainly a way to go, as well as just keeping an eye on the news.

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