Interesting discussion in the office today with some of our analytical team:

Will any of the cash rich companies who have been sitting on the fence about issuing dividends reconsider their positions? What about a one time special cash dividend before the tax rates go up next year?

Think of companies like Apple (AAPL), Berkshire (BRK’a), Google (GOOG), Exxon Mobil (XOM) and Microsoft (MSFT).

I am sure others have thought about this previously; its nothing new, but it is intriguing.

What might the impact of this distribution be on the economy? Do keep in mind that many dividend paying companies are held in tax deferred accounts.

Category: Dividends

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Post Election, Pre-2013 Special Dividends?”

  1. Orange14 says:

    BRK has never paid a dividend and I cannot see them doing so now. I do own some XOM and MSFT and would be pleased to receive some year end cash!!! :-)

    ~~~

    BR: They never did a share buyback until this year either.

  2. jonbacon says:

    Im all for it (long XOM, CSCO), but isn’t the central factor here that the cash is held offshore, and thus would need to be taxed @ US corp rates in order to be repatriated? Maybe a stock dividend or buybacks or some other scheme could get around this…

    Unfortunately for some of these big guys is that there isn’t better opportunity cost investments to make with all that money

  3. 4whatitsworth says:

    I can’t see that happening if they did it seems like people would take the dividend then sell the stock and take the cap gain. It might be useful to indicate that a company will boost the dividend next year to keep the stock from selling off.

    It sure seems like there are a lot of reasons to sell right now.

  4. constantnormal says:

    BR, when you say, “before the tax rates go up next year”, are you assuming a particular outcome to the “fiscal cliff” situation, or is there some other tax change that I am missing?

    I confess to having no clue whatsoever as to what fiscal mayhem the Congress will perpetrate, but having witnessed the lengths to which the EU has gone to avoid altering an unsustainable status quo, and knowing what a competitive bunch we Bananamericans are, I cannot imagine that our Congress will passively hand the asshat world championship title to the Europeans without making a pretty damn good effort to claim it for themselves …

    I can easily see some legislative action to produce an eleventh-hour “solution” to the fiscal cliff, that maintains the Bush tax cuts for another year, or maybe until the unemployment rate hits 6% (or some other target that is simply never gonna happen), and with Obama having to choose between some asshat legislation that preserves the Bush tax cuts but also gives him something he wants, and kicks the can down the road a ways, the president might just opt to sign it, rather than accept the blame for the next recession (which is almost certainly in the bag, no matter what anyone does, at this point).

  5. constantnormal says:

    Are there any historical examples of companies issuing special dividends, or capital gains distributions, immediately before a tax increase?

    Call me cynical, but I’ve come to believe that CEOs think of their stockholders in much the same way as Goldman Sachs thinks of its customers … as “muppets”

  6. agronox says:

    Constantnormal:

    The 15% special tax rate on dividends for equities held longer than a year expires on Dec. 31st.

  7. llsoftware says:

    It’s possible but more than likely they are saving for the rainy day of Obama care and fiscal cliff. Mor importantly is it possible to post on your web site without you dragging me off to never never land because you don’t agree?

  8. techy says:

    you mean CEO would like to give away all that power in the form of cash to be used as they please. For that to happen shareholders are supposed to be the owners of the companies, right? not in this day of Mutual fund, index fund, etf and retirement plans owning most of the stocks with no representation.

  9. VennData says:

    You can be sure if a business wants to issue a special dividend, Obama and the boys from Chicago will find some wacky excuse to stop them.

    – Jack Welch

  10. constantnormal says:

    Ah, thanks. Explains it all.

    I still doubt that we will see any companies issuing surprise dividends. Given how companies have been hoarding cash for a very long time, I see nothing that would make them change now. The only thing that got Apple to begin issuing dividends was the threat that stockholder proposals might require them to do so, under terms that are not anything acceptable to management.

    A lot of companies have no need for bank financing or the bond market any longer, as they have ample stockpiles of cash held offshore, paying trivial amounts of tax on it. Easy enough to use that for capital expansion outside the US, and never bring it back into this country.

  11. callotal says:

    “I do own some XOM and MSFT and would be pleased to receive some year end cash!!! :-)”

    that would give you at best a net wash or perhaps a tax liability— you’d get the taxable cash, but then the share price also would go down to reflect the cash distribution.

    ~~~

    BR: Not exactly — the dividend drop tends to be temporary, and longer term, dividend increases tend to raise stock prices.

  12. Futuredome says:

    Time to go over this so called ‘fiscal cliff”. Yeah it is so bad, forcing this country to pay for the spending they always whine about but really want. Cutting back on the biggest spending spree since 2000 DoD.

    Time for Americans to accept responsibility for once. We also have the trillion+ shortfall in infrastructure as well, yet your complain about the debt you don’t want to take responsibilty for.

    Funny thing is, growth could actually stay the same if not accelerate a bit after the “cliff”.

    Americans should hang their head in shame.

  13. b_thunder says:

    My very first thought was:

    Are YOU starting a rumor here, or are you just repeating a rumor that some (mortally wounded by AAPL) hedge funds are spreading on a 300pt down day in hopes of “getting back to even?”

    My second thought was that “Ritholtz & Co is the *last* shop I’d expect to hear such rumors from” – I guess I need to be less cynical…

    ~~~

    BR: I dont know what part of “Interesting discussion” you are confused by . . .

  14. Orange14 says:

    @ConstantNormal – I’ve owned BKE for the past four years and it’s done quite well for me. CEO gives extra cash back to the shareholders every year (company is a retailer and doesn’t need it for R&D). Just saw the press release that they are paying $4.50 a share this December and surprisingly moving the normal $0.20 dividend payment up to December from January. There was no mention about the tax situation changing in January.

  15. wally says:

    I don’t see this happening. The notion that companies might try to reward ordinary shareholders is a quaint, obsolete idea.

  16. 4whatitsworth says:

    @Orange14 looks like a good time to sell BKE if you really like it just buy it back. Next year if you make over 250K your cap gains rate will be at least 23.5% vs 15% today .

  17. Orange14 says:

    @4whatitsworth – I’m a buy and hold guy and a retiree so I don’t have the same level of income that I had while working. I’ve already sold a bunch of stuff that was overvalued and don’t need any more cap gains to pay right now. BKE being a Nebraska-based company will be acquired by BRK one of these days so it makes sense to sit tight.

  18. Equityval says:

    Suggest you screen for companies with a lot of cash and high levels of insider ownership. Check out AFOP for instance. Company has for the most part generated a fair amount of cash. The CEO owns a fair chunk of the company and in past conversations never had much use for dividends and only paid a single one time dividend a few years ago. Last week they announced a buck a share special dividend (and an ongoing dividend).

    NEU is another example in this category, big inside holder, just announced a $25 a share dividend.

    Maybe, just maybe the CEOs and the big shareholders of these companies are taking out their calculators and deciding this is a tax efficient opportunity to increase their personal liquidity that may disappear in a couple of months. On the other hand, we are told constantly that people don’t change behavior in response to tax rate changes, you know, dynamic scoring is voodoo economics and all that. So it must be just a coincidence.

  19. The dividend play is interesting, but you have to balance the profit from the special dividend against the risk of people selling to take capital gains this year (before taxes go up). I suspect we’ll see some rotation as details of the fiscal cliff deal start to leak. I’ll be watching the relationship between the stocks with gains this year against dividend paying stocks.