Companies use dividends as a way to distribute some of their profits to shareholders. Ideally, those payouts will be made using cash the company doesn't need for operations, growth or capital investment (though that's not always the case).

Usually, these dividends are handed out on a quarterly or semiannual schedule. In rare situations, however, companies pay special dividends -- one-time extra payments to shareholders.

Sometimes these take place because a company has a triggering event -- perhaps the sale of a division -- or had an unexpectedly profitable period that it does not expect to duplicate. In other cases, a company may choose to pay a special dividend because it's doing well and has built up a stockpile of cash larger than it needs for promoting growth or capital investment.

An illustration shows money raining from the sky.

A special dividend can be a very pleasant surprise. Image source: Getty Images.

Some examples of special dividends

A special dividend can be anything from a small payment to a major one. In 2004, Microsoft (NASDAQ:MSFT) paid a $3 per share dividend. That was a $32 billion payout by the company that netted then-Chairman Bill Gates $3.2 billion, which he pledged to give to his charitable foundation, according to The New York Times.

Costco (NASDAQ:COST), which currently distributes a regular quarterly dividend of $0.65, has paid out special dividends on multiple occasions -- $7 per share in 2017, $5 per share in 2015, and $7 per share in 2012. The warehouse club has a fairly predictable revenue model compared to most retailers. More than 90% of its profits come from membership fees, and its pace of expansion has been steady as it has opened about the same number of new stores each year. As a result, the chain can forecast its cash needs better than most of its peers -- and to know when the amount it has on hand is exceeding its needs.

That's something that may actually happen again at Costco soon. CFO Richard Galanti talked about the possibility of offering another special dividend during the company's fourth-quarter earnings call. He would not confirm that one was coming, but noted that past special dividends have been well-received, and that the chain has that move "in our back pocket."

A perhaps lesser-known name, National Beverage (NASDAQ:FIZZ) -- the owner of such brands as La Croix Sparkling Water and Shasta sodas -- paid a special dividend of $2.90 per share in November 2018. Lead board member Samuel Hathorn Jr. explained why in remarks made in a press release.

While the management of many other companies use corporate funds to repurchase shares to enrich their personal holdings, [Founder] Nick [A. Caporella] has always encouraged the Board to favor cash dividends over stock repurchases. If National Beverage had used the cash paid in dividends to purchase stock, the Company would today be 100% owned by Nick and the last seven-plus years of shareholder appreciation would have gone to Nick.

Can you predict a special dividend?

Special dividends are rare, so as an investor, you should never buy a stock with the expectation of one forming a key part of your investment thesis. However, if you already like a stock, the possibility of such a bonus can be an extra cherry on top.

In the case of those few companies, like Costco, that have distributed special dividends more than once, it would be natural to conclude that in the right circumstances, they might do so again. But even with that precedent set, there are no guarantees.

If you'd like to dowse the market in search of other potential special dividend candidates, you could look for companies that are sitting on a lot of cash, or have received large one-time windfalls (or are about to). These influxes of money might come from an unexpectedly great quarter, or from an asset divestiture of a type that's not likely to occur again -- for example, when Fox sold its movie assets and most of its television assets to Walt Disney.

It's worth noting that in the case of the 21st Century Fox sale, there was no bonus dividend payout to Fox shareholders. Like most companies, it apparently plans to use its free cash for growth, to buy back shares, or to hold on the books against the chance of the proverbial rainy day.

A special dividend from a stock you own is like getting an unexpected bonus at work. You won't know it's coming, but you might be able to see some hints. And after one arrives, you'll likely be able to look back and recognize that the signs were there. But if you go into the office expecting a surprise bonus, you'll spend a lot of days being disappointed -- and the same is true when it comes to special dividends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.