1 Huge Dividend!

Editor's Note: As this is a dividend larger than 25% of the market cap, the ex-dividend date is the day after the payment date. If shareholders still have questions, they should contact OXPS directly for clarification on the special dividend dates.

optionsXpress (Nasdaq: OXPS  ) recently announced it will be paying a special dividend of $4.50 per share on Dec. 27 to shareholders of record on Dec. 13. At current prices, optionsXpress will have a one-year yield of 26%! That puts its one-year yield higher than the current top high yielders American Capital Agency (Nasdaq: AGNC  ) (19%) and Chimera Investment (NYSE: CIM  ) (17.6%). While this is a one-time thing, hence the name "special", high yielders can be interesting situations.

One of the more memorable special dividends in recent memory was the special dividend Microsoft (Nasdaq: MSFT  ) paid in 2004. It paid $3 a share out of the excess cash it had sitting on its balance sheet. This return of cash could then be used by shareholders who believed in the company to reinvest or for new opportunities.

optionsXpress' situation is slightly different, with interest rates so low and taxes on dividends expected to rise, optionsXpress raised $120 million in debt at a low variable rate. It is using that cash and the $269 million in cash on its balance sheet to pay out the dividend. This is a great for two reasons. One, it signals the company believes it is strong enough to take on debt to pay out a large dividend. Second, it shows management is savvy enough to take advantage of the absurdly low interest rates out there today.

optionsXpress isn't the only company to have recently announced paying out a special dividend. Other companies that announced special dividends recently which you can still buy into include:

RLI (NYSE: RLI  ) , a specialty insurance company, trades around $60 a share and is paying a special dividend of $7 per share. The dividend is payable on Dec. 29 to shareholders of record as of Dec. 16 and is expected to total approximately $147 million.

China Digital TV (NYSE: STV  ) builds access and control technology for the Chinese TV industry, it's paying a special dividend of $2 per share (shares trade for $8.48 as I write this) to be paid in two installments of $1 each during 2011. Shareholders of record as of the close of business on Dec. 23 will be eligible to receive the dividend. The first installment of the dividend is expected to be paid on or around Jan. 13.

Interactive Brokers (Nasdaq: IBKR  ) , one of the top online brokers, is paying a special dividend of $1.79 per share payable on Dec. 23 to shareholders of record as of Dec. 9. Its shares currently trade around $18 per share.

While none of these are recommendations they are a good place to look. Companies paying special dividends believe they will do well in the future, and by collecting the special dividend you have the opportunity to reinvest in the business at a lower price or keep the cash to invest when bad times come around.

To see a broader list of companies paying out strong dividends, click here to get The Motley Fool's five-page free report, 13 High-Yielding Stocks to Buy Today.

Dan Dzombak recommends you read The Best Investment Advice You Will Ever Get. He does not own shares in any of the companies mentioned. His musings and articles he finds interesting can be found on his Twitter account: @DanDzombak.

Microsoft is a Motley Fool Inside Value selection. China Digital TV Holding is a Motley Fool Rule Breakers recommendation. Interactive Brokers Group and optionsXpress Holdings are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Interactive Brokers Group and Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (40) | Recommend This Article (63)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2010, at 4:49 PM, goalie37 wrote:

    I don't mind the $269 million from cash being paid as a dividend, but borrowing $120 million and paying that out too? I don't care how low the interest rate was, that's just a bad idea.

  • Report this Comment On December 01, 2010, at 5:32 PM, orangefloyd wrote:

    The thing is, it's not a universally bad idea. The money is just about as close to free as it could be. They should easily be able to generate enough cash to cover themselves, and this is a way to provide more benefit to their shareholders than they strictly are able to just by dipping into their bank account, and doing that for a marginal risk.

    They're generating cash, so the leveraging is a way to provide that benefit to investors while leaving them with more options for the new cash coming in. They wouldn't be able to do that if interest rates go up in the future.

    When money is this cheap, as long as you can cover it with cash coming in, you can almost treat the cost benefit analysis as if you were pulling the cash out of the bank. It opens their nose to unexpected problems, but as the article states, it signals that they feel strong.

  • Report this Comment On December 01, 2010, at 6:20 PM, marcjones281 wrote:

    You should have also mentioned White River Capital (RVR). From today's Wall Street Journal, "The company said it will pay a one-time dividend of $4 a share, before a potential tax increase on Jan. 1"

  • Report this Comment On December 02, 2010, at 12:20 AM, TMFKopp wrote:

    @goalie37

    Small point: The total amount of the dividend is $259 million.

    More important: The total amount of the dividend is $259 million while the company finished the third quarter with $269 million in cash & equivalents on its balance sheet. The company is raising debt to pay part of the dividend, but it will still have negative net debt after the dividend is paid.

    Why raise the debt then? I think it's because it gives the company more flexibility. It's effectively paying out all of its cash to shareholders, but by issuing debt for part of it, it's still able to keep some cash on the balance sheet in case a good use for it comes up. The alternative would be paying a smaller dividend or paying out all of the cash and having to frantically raise debt later if a really good opportunity comes up. And if the cash isn't needed after all? The cash flow from the business will easily pay down that debt load.

    I think the route that they took makes a lot of sense right now because of the low borrowing costs available. And as long as they're going to be paying out a special dividend this year to avoid higher taxes, they might as well unload all of the cash.

    Matt

  • Report this Comment On December 02, 2010, at 10:12 AM, TMFDanDzombak wrote:

    @goalie37 I think in some instances its a fine idea. I'm not sure in their case if its a good or bad idea. Their business is one in which investors perception of whether you are doing well or not really matters. Dollar Thrifty comes to mind, a few years back they took on debt to buy back shares when there shares were really down. That came back to bite them when their shares went further down later and investors questioned if they'd be able to make their debt payments/turn over their car debt.

  • Report this Comment On December 02, 2010, at 10:22 AM, TMFDanDzombak wrote:

    @orangefloyd Agreed. In the perfect case it would be a company with unquestionably stable cash flows. For instance it'd be interesting if phillip morris were to raise a bunch of debt right now and pay out a dividend but I don't see that happening.

  • Report this Comment On December 02, 2010, at 10:23 AM, TMFDanDzombak wrote:

    @marcjones281 There are at least 5 more companies I could have mentioned.

  • Report this Comment On December 02, 2010, at 10:23 AM, TMFDanDzombak wrote:

    @TMFKopp Thanks

  • Report this Comment On December 02, 2010, at 12:10 PM, cervelorider wrote:

    regarding the ex date.....I am seeing some several different dates...some folks say 9 Dec is the ex-date but my brokerage says it is 28 Dec which is after the pay date....anyone agree?

  • Report this Comment On December 02, 2010, at 12:34 PM, TMFDanDzombak wrote:

    @cervelorider Assuming you are talking about OXPS. From their press release: CHICAGO, Nov. 29, 2010 (GLOBE NEWSWIRE) -- optionsXpress Holdings, Inc. (Nasdaq:OXPS) today announced that its Board of Directors has declared a cash dividend of $4.50 per share on the Company's outstanding shares of common stock. The total amount of the dividend is approximately $259 million. The dividend is payable on December 27, 2010 to shareholders of record on December 13, 2010.

    (https://investor.shareholder.com/oxps/releasedetail.cfm?Rele...

  • Report this Comment On December 02, 2010, at 1:41 PM, cervelorider wrote:

    @TMFDan...saw that thanks for reposting though...see this thread by TMFCanuck however...I am trying to track this down for myself, want to make sure I have the right ex date

    http://boards.fool.com/1081/special-dividend-28887345.aspx?s...

  • Report this Comment On December 02, 2010, at 4:38 PM, langco1 wrote:

    msft paid a $3 dividend over six years ago and their stock is still at the same price now!!

  • Report this Comment On December 02, 2010, at 4:46 PM, langco1 wrote:

    dollar thrifty(dtg) has been one of the hottest stocks around for the last year and a half the company is now being sold to avis(car) another red hot stock...i bought car for as low as 34 cents a share and sold it eight months later for $12!!one of my best buys ever!

  • Report this Comment On December 02, 2010, at 6:51 PM, StockSymbol wrote:

    Would it be fair to say that one would consider this a good buy if you think OXPS is worth their current stock price (or more) minus the special dividend?

  • Report this Comment On December 02, 2010, at 10:24 PM, NudeTypist wrote:

    Newbie Question:

    If I buy this stock prior to Dec. 13 and sell it on Jan. 3rd, do I get the full $4.50 dividend? Or is the dividend paid quarterly?

  • Report this Comment On December 03, 2010, at 11:33 AM, TMFDanDzombak wrote:

    @langco1 but if you had reinvested that dividend and all subsequent you would be far better off

  • Report this Comment On December 03, 2010, at 11:34 AM, TMFDanDzombak wrote:

    @langco1 Yeah, I passed on it at $1 and $.50 as I thought it was going bankrupt. A big miss for me

  • Report this Comment On December 03, 2010, at 11:36 AM, TMFDanDzombak wrote:

    @StockSymbol Depends how much more but as long as you have built in a margin of safety into your valuation then yes

  • Report this Comment On December 03, 2010, at 11:37 AM, TMFDanDzombak wrote:

    @NudeTypist Yes, full dividend

  • Report this Comment On December 03, 2010, at 11:39 AM, TMFDanDzombak wrote:

    @cervelorider I would take Jim's word for it especially since he called the exchange

  • Report this Comment On December 04, 2010, at 12:34 PM, langco1 wrote:

    oxps is a decent company and this is a great dividend.just be careful of the price you pay.if the dividend of 26% is based on a share price of say $16 it will run up quicky to say $20 or more then most likely drop right back to where it started after the payout.paying the high price then being forced to sell it lower will cut into the actual amount you net and could easily cancel it out.when you see a deal like this you need to act fast.the insiders were already buying before we ever even heard of it and the price was already climbing!

  • Report this Comment On December 04, 2010, at 12:43 PM, langco1 wrote:

    tmfDanZombak..i was a manager with(car) at the time and even thought about making a offer to buy the entire company it was so cheap!i loaded up on the stock instead from 35 cents-$1.00 a share made more in 8 months than i would if i worked there for 25 years then left!

  • Report this Comment On December 07, 2010, at 2:51 PM, cervelorider wrote:

    over 21 bucks today...nice run since divvy announced...even if it falls the amount of the dividend, this is going to be a nice play. Thanks all for the info!

  • Report this Comment On December 07, 2010, at 8:08 PM, gordo2389 wrote:

    So is anyone going to sell this one prior to the payout date? I foresee this going up to 22.00 maybe 23.00 by Thursday and then rocking back down due to the dividend in the following days due to that be the ex-dividend date. Trying to figure out if it is worth it to pull out at around 22.00 for a quick profit of 300 or to ride it and get 600 off of dividends and risk the stock plummeting and making my net much less.

  • Report this Comment On December 08, 2010, at 10:44 AM, TMFDanDzombak wrote:

    @cervelorider You're welcome

  • Report this Comment On December 08, 2010, at 10:46 AM, TMFDanDzombak wrote:

    @langco1 good story

  • Report this Comment On December 08, 2010, at 3:43 PM, theologicaldr wrote:

    I'm still confused about the ex-div date. I know that OXPS gives 12/13 and 12/27 as the date of record and the pay date, respectively. I also know that ex-dates are generally two full business days prior to the date of record. But I once did not receive a dividend for a company who placed the date of record AND the pay date PRIOR to the ex-div date. (See REMC latest special dividend info.) In order to get that dividend, one had to realize that buying by their ex-div date was still too late.

    Sooooo. If I buy OXPS before the bell today (18 minutes away), will I own the stock prior to an undiscoverable special dividend ex-dividend date?

  • Report this Comment On December 08, 2010, at 3:46 PM, theologicaldr wrote:

    Or, a more accurate question, will I be entitled to the $4.50 special dividend if I buy right now?

  • Report this Comment On December 08, 2010, at 4:03 PM, theologicaldr wrote:

    Okay, with delayed postings and the market now closed, new question: if I buy OXPS tomorrow will I be in time to get the $4.50 special dividend?

  • Report this Comment On December 09, 2010, at 10:53 AM, cervelorider wrote:

    @gordo....maybe not "foolish" but I took an 8% on my initial investment...a tad less than the special dividend, but consider this: with the tax rate on dividends up in the air (possibly) I thought it better to take a healthy chunk of change and not risk the downside (oxps took a nosedive almost 1.75/share in the last few days).

  • Report this Comment On December 09, 2010, at 2:29 PM, theologicaldr wrote:

    As a newbie, I would have thought that maybe some kind and helpful veteran would have responded to my query by now. I re-post now, asking for help very quickly and most appreciatively.

    If I purchase OXPS stock TODAY, will I be entitled to the $4.50 special dividend?

    Thanks for your help.

  • Report this Comment On December 09, 2010, at 3:07 PM, ThomasW1974 wrote:

    @theo: I don't think anyone really knows the answer to the quetion.

    I tried to call investor relations at OXPS yesterday and got voicemail.

    I wish someone smarter than me would answer this question though!

  • Report this Comment On December 10, 2010, at 9:59 AM, CaseyTatum wrote:

    Assuming we still have time to buy and get the dividend... and assuming anyone is still reading these comments...

    Since the stock is likely going to dive after the dividend is paid, why not buy the stock now to get the special dividend AND short the stock so that you can take advantage of the likely decline in price?

    I'm sure everyone would do that if it were that easy - can anybody tell me why I shouldn't?

    Thanks

  • Report this Comment On December 10, 2010, at 4:43 PM, ThomasW1974 wrote:

    @ Cassey- Sure, that's the goal but it's not likely going to happen.

    Let's say the stock climbs to $21.00 per share when the Div hits. The next morning the stock will open at $16.50 to reflect the $4.50 per share the comapny no longer has. Then the millions of people who are thinking like you are will flood the market with thier shares because they are happy with the div and want out of the free falling stock. This lowers the price even more. So the stock falls another buck or two o $14.75ish.

    So, what's that mean? You buy 1000 shares at $20.00 for $20,000.00. You keep them and get $4,500.00 in Divs. But the 1000 shares are trading at 14.75 five minutes after opening bell after the div hits. Meaning you lose $5,250.00 share on the hit in the stock price. It's a net loss of $750.00. The only way you make money is to either buy lower that $20.00 or keep after the div hits and wait for the stock to go back up.

    As such, shorting after the dividend is not a very likely strategy for success. Now riding the wave and saleing before the div hits is a better way. But it takes perfect timing and is probably not the best long term strategy.

    Good Luck,

    Thomas (fool in training)

  • Report this Comment On December 11, 2010, at 1:26 PM, gordo2389 wrote:

    @Thomas - I got into the stock at 19.57, placed an overnight order when it was 19.05 but at opening bell it had climbed .50. I am in for 130 shares. I figured I would ride this out, take the dividend, and then wait some more. How high do you see this stock going back up to in a couple of months?

  • Report this Comment On December 13, 2010, at 1:07 AM, ThomasW1974 wrote:

    Gordo- I think the skys the limit if you keep and hold. I believe that based on the stock advisor recomendation and everything I've read about it's potential for buyout.

    I can't really put a number on it but if I were investing for the long term I'd buy as much as I could now, get the dividend and just hold. If and when it goes down, don't worry, just buy more and lower your break even.

    I doubt it's going to go anywhere but down in the next couple months though. This isn't a stock I'd buy if I wanted to make lots of money in the next couple months.

  • Report this Comment On December 13, 2010, at 9:53 AM, cervelorider wrote:

    agreed buying when these special dividends are announced is key. Me, I took my 8% return and then plan on repurchasing when the stock corrects itself after the ex date. More longer term returns.

  • Report this Comment On December 13, 2010, at 6:29 PM, dpm26 wrote:

    Has anyone figured out the Ex-Div date issue?

    I bought on 9th of december so I'm not sure if I'm eligible for the dividend payout? does anyone know?

    I bought solely for the 1 time dividend payout. Once that happened,I was going to wait until the rate was about what I bought it at then sell. Anyone else with me here?

  • Report this Comment On December 13, 2010, at 6:41 PM, mroc237 wrote:

    You have to hold until December 28th to receive the dividend. Speaking of massive dividends I stumbled across a penny stock paying a 44% yield dividend. Penny stocks are certainly not every1's thing but for investors who do their own in depth diligence they can be very profitable

    Anyway more info check out:

    http://caps.fool.com/Blogs/penny-stock-dividend-44/488913

  • Report this Comment On December 15, 2010, at 4:23 PM, rajivcodes wrote:

    NEWBIE QUESTION:

    I bought some stocks of RLI on 13th Dec and it seems that dividends of $7 were distributed on Dec 14th . Will the dividend amount be deposited in my trading account on Dec 29, 2010? Am I eligible for it?

    Also, I see that on Dec 13th the stock price was about $61 and then, even before the market opened on Dec 14th, I see it down to $53. How can this happen? And How can I sell the stocks before the market opens?

    RAJIV@NEWBIE

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