It’s Christmas in November for Dividend Investors

Dividend investors have to be feeling special right about now. 

This week, Costco (NASDAQ: COST  ) joined Las Vegas Sands (NYSE: LVS  ) and Dillard's (NYSE: DDS  ) in showering cash on its shareholders in the form of a big special dividend. Costco's one-time holiday gift will be a hefty $7 per share. Casino operator Las Vegas Sands, meanwhile, will be sending an extra $2.75 a share to its investors next month. That's double what the company plans to pay out in dividends for all of next year. And Dillard's is stuffing its investors' stockings with an extra $5 a share, due to hit their accounts just a few days before Christmas.

It's raining dividends
All told, more than 170 companies have announced special dividends so far in November, compared to just 72 over the same period last year. Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, called the jump in special dividends "amazing," telling TheWall Street Journal that he could find "no precedent like this at all going all the way back to the 1950s." Surprise bonuses like these are making for some uniquely exciting times for dividend investors.

And special payouts aren't the only extraordinary dividend events happening right now. A host of companies, including Disney (NYSE: DIS  ) and Wal-Mart (NYSE: WMT  ) have made the rare move of accelerating their scheduled dividend payments so that they happen before the start of 2013. Wal-Mart's $0.40 a share dividend will be coming about a week early. And Disney's $0.75 annual payout will be processed in December, rather than the usual January date.

So, not only are extra dividends being paid out, but dividends that should have come in January will now be showing up in investors' accounts by late December. Again, just in time for last-minute holiday shopping.

Taxes are to blame
But these dividend payers aren't operating out of an extreme bout of holiday cheer. Costco, for example, says that its special dividend is powered by the company's "strong balance sheet and favorable access to the credit markets." That statement turned out to be a hint to Costco's next move. It later said that it would fund the dividend through a new round of bond offerings. Las Vegas Sands and Dillard's also boasted about their strong capital positions in press releases announcing the special dividends.

What went unsaid in all three statements is the fact that the companies are also acting to cover their bases with shareholders. They're preparing for a likely increase in dividend taxes that could soon make it more expensive for shareholders to receive such payments. After all, this may be the companies' last chance to pay out dividends at the 15% maximum tax rate that investors have enjoyed for years. Starting in 2013 -- if no changes are made to the law -- that low cap on dividend taxes will expire and dividends will be taxed at the same rates as salary income.

That makes the next few weeks an ideal time to pull forward some dividend payments, just in case Congress doesn't pass an extension of the Bush-era dividend tax rates. And if management was considering a special dividend for any time in 2013, paying it out now instead makes sense as a way to keep investors happy, given the uncertainty hanging over dividend taxes.

Christmas only comes once
It also means that dividends may become less popular in corporate boardrooms starting on New Year's Day. Increasingly, company executives may be making resolutions to use share buybacks as their preferred way to return capital to shareholders going forward.

Until then, there's not much for dividend investors to do but enjoy the rare opportunity of being showered with extra payouts for the next few weeks. Uncertainty in the tax code and strong corporate balance sheets have combined to create a perfect winter storm of dividends. Just don't consider this holiday splurge to be evidence of more that's set to come. If anything, it's just the opposite.

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  • Report this Comment On December 07, 2012, at 8:29 AM, home4sds wrote:

    Good article Demitrios - thank you!

    Can you share your list of companies which declared special dividends, please?

    Good luck!

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