November 29, 2010
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of online broker optionsXpress (Nasdaq: OXPS ) jumped as much as 10% in early trading today before settling back down to a more modest 2% gain.
So what: optionsXpress announced this morning that it will pay out a $4.50 special dividend later this month. The company, which currently has a debt-free balance sheet, will be returning a total of $259 million to its shareholders.
Now what: It's an interesting move. Rather than use all of the $269 million of cash on its balance sheet, it opted to take out a four-year loan, citing extremely low borrowing costs. As to the timing of the payout, the company noted the uncertainty over dividend tax rates in 2011 and beyond. The loss of the cash and the addition of debt will bring down the company's earnings a bit, while investors are likely to adjust down the stock price by the full $4.50 post-dividend.
As a shareholder myself, I see this as a pretty savvy move since it puts cash in shareholders' pockets ahead of potential tax changes, while the dividend-related drop in the stock price may make it look cheap next to competitors like Charles Schwab (Nasdaq: SCHW ) and E*TRADE (Nasdaq: ETFC ) .
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