A lot of tech companies that do not pay regular dividends will sometimes pay special dividends. It allows them the possibility of getting cash back to shareholders without the constraint of a regular payment.
Another reason companies may issue a special dividend is due to a one-time influx of cash. A commodity business experiencing windfall profits from price increases, or a business that just did exceptionally well in a quarter or two, may decide to reward shareholders with the extra profits.
Example of a special dividend
Let's take a look at a semi-recent special dividend. In November 2020, Costco (COST +0.15%) was paying a regular dividend of $0.70 per quarter. However, it announced that it would pay a special dividend in December of $10 per share.
The special dividend carried a total cost of $4.4 billion for Costco. According to CEO Richard Galanti, the company's balance sheet was strong enough to pay the special dividend while continuing to grow.
Costco has developed a reputation as a semi-regular special dividend payer. The membership-only retailer has also paid the following special dividends:
- $7/share in December 2012
- $5/share in February 2015
- $7/share in May 2017
In April 2021, it also raised its regular quarterly dividend from $0.70 to $0.79 per share.
Costco is an incredibly strong company that has increased revenue for years, including in 2020, and it usually has plenty of cash and operating income to meet debt payments and other obligations, as well as to invest in the future.
Special dividend payers
Here are a few more companies paying special dividends:
Main Street Capital (MAIN +0.02%) provides financing for mid-sized businesses that are too big for community banks and not big enough for large commercial banks. As a Business Development Company (BDC), it must distribute 90% of its net income to shareholders. In addition to those high regular dividends, it also pays supplementary special dividends from time to time when its portfolio positions have large gains.
Rio Tinto (RIO -1.30%) is a mining company focused on iron ore and copper, among other metals. It issued a special dividend in June 2021 following a massive price spike in iron ore. The special dividend amounted to $1.85 per share, in addition to its normal dividend of $3.76 per share.
Wingstop (WING +4.64%) is an American restaurant chain that specializes in chicken wings (or, more recently, chicken thighs due to a wing shortage). The company has thrived during the COVID-19 pandemic because it does so many to-go orders. Toward the end of 2020, it declared a $5/share special dividend. This is the company's fourth special dividend since going public in 2017.
Camping World (CWH +4.13%) is an RV retailer that also had a great 2020. It has a normal quarterly dividend, a "regular special dividend," and, in November 2020, declared an additional special dividend of $0.77 per share.
Cohen & Steers (CNS +0.14%) is an investment manager that invests in real assets and alternative income around the world. It has declared special dividends annually since 2015, with the dividends reaching $1 per share every year since 2017.
Diamond Hill Investment (DHIL +0.66%) is another asset management firm. You may be noticing a trend here: Investment managers want to reward shareholders (and usually themselves) with special dividends when they have good returns. Diamond Hill actually didn't have a regular dividend until 2020, preferring to make special dividend payments. It made one each year from 2008 to 2020, the lowest of which was $3 per share and the highest being more than $7 per share.
