How Dividend Paying Companies Are Helping Ahead of the Fiscal Cliff

Companies / Dividends Dec 04, 2012 - 05:44 AM GMT

George Leong writes: The fiscal cliff is currently dictating the trading action in the equities market as we near December and the year-end. With 28 days left until the Bush-era tax cuts are allowed to dissipate, there is widespread fear and concern of a significant jump in taxes, including those on dividends, especially for those who invest heavily in dividend paying stocks.

The prevailing dividends tax of 15% is extremely accommodative to income-seekers, but under the fiscal cliff, we could see the tax on dividends surge to 39.6% for earners in the highest tax bracket. For dividend investors, this means a massive jump in taxes in 2013.

With the uncertainty of whether the fiscal cliff will be resolved prior to January 1, we are seeing numerous U.S. companies paying out special dividend payments to their shareholders now to avoid a potential massive tax hit for investors in the future years under the fiscal cliff.

These companies, whether or not they have historically been big dividend payers, are doing what they can to help shareholders by paying big dividend payments now under the lower taxes.

Just take a look at the numbers. In the period from the end of September to mid-November, Bloomberg says that 59 companies belonging to the Russell 3000 index announced special cash dividend payments, versus 15 companies in the same timeframe in 2011. (Source: “Special Dividends Surge Fourfold as U.S. Tax Increase Looms,” Bloomberg Businessweek, November 19, 2102.) The move to initiate special dividend payments is not a surprise, and I expect the dividend payments to continue over the next weeks, unless a deal is struck.

Assuming the fiscal cliff is coming, as an investor, you want to try to receive some dividend payments this year at the lower tax rates.

Costco Wholesale Corporation (NASDAQ/COST), which usually pays annual dividend payments of $1.10 per share, announced that it was paying a special dividend of a whopping $7.00 a share, or seven percent of its prevailing share price. That’s around $3.0 billion in payouts, but the company is looking to what benefits its shareholders. You still have a chance to partake, as the special dividend is payable on December 18 to shareholders of record on December 10. Companies like Costco that have strong cash reserves, $4.9 billion in this case, will be looking to pay out some cash to shareholders at this time before tax rates ratchet higher.

The special dividend payments are not limited to the large-cap stocks. Small-cap Movado Group, Inc. (NYSE/MOV), armed with about $156 million in free cash, declared a special dividend of $0.75 a share to be paid in December.

Other companies announcing special dividend payments that you can still get in on include Wynn Resorts, Limited (NASDAQ/WYNN), offering an $8.00 special dividend; Las Vegas Sands Corp. (NYSE/LVS), offering a $2.75 special dividend; and Dillard’s, Inc. (NYSE/DDS), which is offering a $5.00 special dividend.

And then there’s Apple Inc. (NASDAQ/AAPL). The company pays out $1.10 per share in annual dividends, but with nearly $30.0 billion, or $30.97 per share, in cash, I wouldn’t be surprised if Apple soon decides to pay out its own special dividend payments; but then Apple may decide it needs to look toward the future and hold on to the cash.

One of the richest companies out there is Google Inc. (NASDAQ/GOOG), with net cash of over $37.0 billion. The company is not a regular dividend payer, but I wonder if there may be a special dividend in the works?

One thing is for sure; as the deadline approaches, I expect to see more companies declare special dividend payments over the next week.

Source: http://www.investmentcontrarians.com/stock-market/how-dividend....

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

Copyright © 2012 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.