2015 Has Been a Special Year for Special Dividends

Costco Credit Card

It’s hard to find an investor who doesn’t love dividends. After all, they’re one of the great benefits of stock ownership, since they’re funds that go directly into a shareholder’s pocket.

What’s even better than a regular distribution of these much-loved payouts is that rare creature, the special dividend. Specials have been more popular than usual so far this year, with numerous companies declaring them to the surprise and delight of their stockholders. Here’s a look at this bump in popularity, and at who’s been contributing to the trend.

Stream of Money

A rising tide lifts all boats, as the saying goes, and the levels of the various stock markets keep ascending. The benchmark S&P 500 index (^GSPC) has advanced by 11 percent over the past year, on the back of a growing economy and generally stronger performance by its component firms.

Numerous high-profile companies have reported quarterly results that have broken records. Take Apple (AAPL), which recently posted the best quarter in its nearly 40-year lifespan — and the most profitable three-month period of anypublicly traded company in history.

A higher bottom line generally (although not necessarily — be careful!) means more cash flow for a successful company. And the more money in the till, the more a company can spend on shareholder-pleasing moves like an extra dividend.

Special Circumstances

The current low-interest-rate environment also helps. A company that wants to distribute a special payout for its shareholders can borrow to help finance it (provided the company has good credit and willing lenders, of course).

This was the case with massive retailer Costco Wholesale (COST), which declared a very chunky $5-per-share additional dividend earlier this year. That’s going to cost around $2.2 billion to fund, which the company says will partially be sourced from borrowings (the remainder will come from its own cash position).

That $5 is a nice present for the company’s shareholders. By itself, it yields roughly 3.3 percent on Costco’s current share price, a significantly higher rate than the average yield of the dividend-paying companies in the S&P 500 index (1.9 percent).

A special dividend can also be funded from a unique, hard-to-repeat development that dumps a load of cash on a company.

Exhibit A: Best Buy (BBY). Over the past three fiscal years, the big electronics retailer has collected a windfall from a legal settlement related to the manufacture of liquid crystal displays it sold. It decided to pass on those monies to its shareholders, in the form of a 51-cent-per-share special dividend.

That was the cherry on top of a sweet cake for those investors, since it was announced concurrently with a 21 percent hike in the company’s regular quarterly dividend (to 23 cents per share).

Dividend 411

Special dividends are, by their nature, unique and typically unexpected. So how can investors find out about them in order to profit from a company’s spike in generosity?

The best way, of course, is to sign up for email news alerts via company websites. It behooves investors to stay connected to their shareholdings this way, and most publicly traded companies announce their dividends nearly as soon as they make the decision to offer them.

Special or otherwise, these are declared far enough in advance for interested parties to buy the stock in order to take advantage of the payout(s).

That’s all well and good for an investor’s existing portfolio, but how about the thousands of other stocks? No problem; a raft of websites keep a running tally on the many dividend declarations handed down by the nation’s companies.

Subscription service, for example, has an entire section devoted to the subject, with a news feed updated constantly.

As for free sites, Nasdaq OMX Group (NDAQ), operator of the Nasdaq stock exchange, is one of many entities maintaining a dividend calendar. Its entries are sortable by categories such as amount and payment date.

Trendy Payouts

By my count, around 30 special dividends have been declared so far this year. That’s often enough to say that they’ve become a bit of a trend.

Will they continue to be fashionable? If the markets keep rising, and their component companies maintain their collective good performance, the answer should be yes. Let’s keep our eyes on those news feeds to watch for the next ones.

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