Amid all the handwringing, wailing, and general gnashing of teeth surrounding the fiscal cliff, who would have guessed it could turn out to be a boon for certain investors?
A record number of special dividends
On Wednesday, the Financial Times reported that shares in Costco (Nasdaq: COST ) rose by 6.3% after the jumbo-portion retailer announced a special dividend of $3 billion, or $7 per share. Why disburse that mighty lump of cash now?
Buried in the so-called fiscal cliff -- a $600 billion combination of tax increases and spending cuts set to hit simultaneously at the end of the year -- is a potential increase in the tax on dividends. If the Bush-era tax cuts aren't renewed, that rate will change from its current 15% to your applicable personal tax rate.
So Costco has joined in what the Financial Times is calling "a record number of U.S. companies [that] have announced special dividends in recent months." Riding Costco's coattails, J.C. Penney (NYSE: JCP ) gained 4.6%, Saks (NYSE: SKS ) 4.1%, and Nordstrom (NYSE: JWN ) 2.4%.
The benefits of shortsightedness and pigheadedness
The reasoning behind the release of these special dividends seems to be plain old goodwill on the part of the participating companies toward their shareholders. One CEO, whose bank was one of the record number of companies paying out special dividends, told the Financial Times: "We've had a great year ... [and] our capital levels are extremely healthy ... I am delighted to do [this] for shareholders."
And shareholders are delighted they're doing it, which is likely the main reason behind the payments. Companies are well aware that the special dividends portray them as willing to share their wealth and as responsive to shareholders' needs.
Keep an eye out for more companies announcing special dividends in the next few weeks. If their share prices look depressed but the fundamentals look solid, don't be afraid to snatch them up. Chances are, it's market uncertainty over the fiscal cliff that's driving the prices down. And then thank Washington for its mind-boggling shortsightedness and pigheadedness.
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