It's Raining Dividends

Stocks are off to a poor start this morning, with the Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.7% and the broader S&P 500 (SNPINDEX: ^GSPC  ) down 0.8% as of 10:15 a.m. EST.

The macro view
In this column, I recently mentioned that the number of company managements that had mentioned the fiscal cliff during calls with investors had skyrocketed in the third-quarter earnings season. Today, I came across this biting comment in my Twitter feed:

A CEO who complains about uncertainty is like a fish who complains about being wet. bit.ly/UYR8Xw

— Chris Dillow (@CJFDillow) November 28, 2012

While executives may find uncertainty linked to the fiscal cliff paralyzing, it is clearly spurring them to action in one area, with a record number of companies announcing special dividends. According to Markit, 103 companies have announced they will pay a special dividend before the end of the year, compared with a fourth-quarter average of just 31 since 2005. Dividends have been taxed at 15% since the 2003 Bush tax cuts; that rate could spike to 40% next year.

Not surprisingly, companies with high insider-ownership, such as Wal-Mart (NYSE: WMT  ) , appear to be particularly enthusiastic to return money to shareholders this way. I believe this a positive example of a proper alignment between insider and shareholder interests. The technology sector is well-represented by companies with high net cash balances that should consider doing the same thing, including Microsoft (NASDAQ: MSFT  ) and Apple (NASDAQ: AAPL  ) . Dividends are powerful wealth-builders: Click here to find out the "3 Stocks Dividend Investors Need."


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