With the looming fiscal cliff still unresolved (who really thought Congress and Obama would fix this prior to the last minute) and many investors fearing a near-tripling of dividend tax rates, many companies are either issuing completely unique special dividends, or they’re pulling 2013 dividends into 2012 to ensure that the dividend payments are taxed at the current 2012 tax rate. This not only benefits investors holding shares, but also the executives themselves since they are usually large holders of company stock. In additional to enjoying the lower tax rate, the shares often spike following announcements of special dividends as well and insiders enjoy the 2012 capital gains tax rates or stock option spikes as well. It’s been a real bonanza for many insiders in late 2012 and it will be interesting to see what the fallout is in 2013 from all these moves. Regardless, here’s a list of 10 companies making moves in late 2012 in anticipation of the 2013 dividend tax hike (either issuing larger than normal dividends, paying special one-time dividends, or pulling them up from 1Q2013):
- Expedia declared year-end special cash dividends this month, saying it would pay shareholders 52 cents per share on Dec. 28.
- Costco Wholesale’s massive $7-a-share payout, will cost the retailer $3 billion.
- American Water Works Co., the largest publicly traded water company in the U.S., declared a quarterlydividend of 25 cents and accelerated the payment to Dec. 28. The company’s shares have risen 18 percent this year.
- CME’s board approved a plan to pay a $1.30-per-share annual variable dividend this month, instead of next year as initially planned. The payout is more than double the company’s prior annual dividend. CME’s annual variable dividend of $1.30 per share is payable on Dec. 28 to shareholders of record on Dec. 17.
- Sirius XM Radio, said it will issue a special dividend of 5 cents a share and repurchase as much as $2 billion in stock. The special cash payout is payable Dec. 28 to stockholders of record as of Dec. 18. The shares have gained 53 percent this year.
- Dick’s will pay a $2 special dividend Dec. 28 to investors who own its common and Class B common shares as of Dec. 17. Dick’s put the price tag on the dividend at $254 million.
- Electro Scientific Industries said Monday that it will pay a special dividend of $2 a share on Dec. 27. The news sent ESI’s shares soaring nearly 13 percent following the announcement.
- Family Dollar announced that it will pay its stockholders the regular quarterly cash dividend of 21 cents per share by the end of this year, instead of January.
- The Cato Corp. announced it will pay a total dividend of $2.25 per share on Dec. 28 to shareholders of record as of Dec. 14. That total includes a special dividend of $1 per share.
- Oracle is speeding up the payment of three dividend payments scheduled for 2013. Oracle will be making its upcoming three dividends, worth 18 cents a share in total, by the end of the calendar year.
I have mixed feelings on all these special dividend moves. On one hand, trying to minimize the tax burden of investors and insiders alike is a reasonable measure. However, I like to think that companies are more long-term in their thinking and actions and this could be viewed as no different than trying to manager quarterly earnings announcements and other short-term thinking that is often undertaken at the expense of the best long-term interests of the company. For instance, what if the company could have used those funds next year for a better investment or now have to issue lower dividend payments into the future to account for a cash shortfall as a result of these special and early dividends? On the other hand, another interesting side effect should be the US Treasury seeing a 2012 tax year windfall, as investors have to report larger than usual gains on capital gains and dividend payments. This will surely be reflected in 2013 with smaller than usual receipts thought.
In addition, while taxes is an important part of investing, so is commissions you pay per trade. If you want to trade any of the stocks mentioned, you want to pick a stock broker who’s has low trading fees. Tradeking is a perfect broker for that purpose since each stock trade is $4.95. TradeKing has many promotions that you might want to take advantage of before signing up.
What are Your Thoughts on Special Dividends in 2012?