Since the end of September to mid-November, 59 companies in the Russell 3000 stock index announced a one-time special dividend, up from about 15 in the same period last year.
And it's not just special dividends that are helping investors - regular dividends are being altered as well.
Wal-Mart Stores Inc. (NYSE: WMT) just announced its fourth-quarter dividend payout, originally scheduled for Jan. 2, will now be paid on Dec. 27.
"It's a foregone conclusion the rates are going up -- it's just a matter of how high they go," Todd Lowenstein, a Los Angeles-based money manager with HighMark Capital Management Inc. told Bloomberg News. "When you know that 15% tax rate is going away and you have excess cash buildup, it makes sense to return some of it back to shareholders now."
As things currently stand, the top tax rate on dividends will go from 15% to 43.4% at the end of the year, causing companies to seriously consider offering a special dividend.
Special dividends offer investors a "twofer": Besides collecting a large dividend payout before it's taxed at a higher rate, investors will enjoy higher share prices as special dividend-paying stocks get a boost from the news.
So where can investors find these special dividends?
Where to Look for Special Dividends Wynn Resorts Ltd (Nasdaq: WYNN) was one of the many companies in the past month to announce a special dividend. Along with Wynn's $750 million dividend, HCA Holdings Inc. (NYSE: HCA) issued a $1.1 billion dividend payout and LyondellBasell Industries NV (NYSE: LYB) declared a $1.6 billion dividend.
Choice Hotels International Inc. (NSYE: CHH), AOL Inc. (NYSE: AOL), DSW Inc. (NYSE: DSW), Homeowner's Choice Inc. (NYSE: HCI), Sinclair Broadcast Group Inc. (Nasdaq: SBGI) and American Eagle Outfitters (NYSE: AEO) have also issued special dividends so far.
"It's like a nice end-of-the-year gift," Jay Wong, a Los Angeles-based portfolio manager for Payden & Rydel, a money manager that manages $75 billion told The Wall Street Journal. "We anticipate that some others will probably issue special dividends before the end of the year, when they get a better sense of what's going to change in the tax structure and they assess their financial health."
Narrowing down your search for potential special dividend-paying companies can be difficult, but having some guidelines will help. Here are some characteristics of the most likely special dividend payers:
- Insiders own 25% of shares outstanding.
- Free-cash-flow yield is greater than 5%.
- Debt-to-equity ratio is less than 30%.
- The company has announced special dividends in the past.
For those who want to take a bit of a chance, here are ten contenders for special dividends listed in terms of market cap from largest to smallest:
- Microsoft Corp. (Nasdaq: MSFT)
- International Business Machine Corp. (NYSE: IBM)
- MasterCard Inc. (NYSE: MA)
- Las Vegas Sands Corp. (NYSE: LVS)
- Stryker Corp (NYSE: SYK)
- The Gap Inc. (NYSE: GPS)
- Paccar Inc. (Nasdaq: PCAR)
- Williams-Sonoma Inc. (NYSE: WSM)
- Patterson Companies Inc. (Nasdaq: PDCO)
- Stamps.com Inc. (Nasdaq: STMP)
- Extra: Limited Brands Inc. (NYSE: LTD)- already issued one in 2012, but in 2010, the last time the dividends tax could have changed, it issued two special dividends before the end of the year.
"Tax rates on dividends are never going to be better," said Steve Joyce, CEO of Choice, on its last earnings call. "I don't know how much worse they are going to get, but they are going to get worse."
[Editor's Note: Investor education, like knowing how to pick the right dividend stock, requires time and resources not every investor has.
That's why we have packaged the best investor tools - ones that lead to financial freedom - in our Private Briefing investment service.
Private Briefing, a daily column by Executive Editor William Patalon, delivers an inside look at the most profitable trends and market analysis that allows investors to make informed decisions. Its advice will last an investing lifetime.
Plus, Private Briefing has delivered 45 winning picks, including double- and triple-digit gainers.
And the best part: It's less than $8 a month. To learn more about Private Briefing, click here.]
Related Articles and News:
- Money Morning:
These Dividend Stocks Will Be the Real Winners of Election 2012
- Money Morning:
Dividend-Paying Stocks: AOL Not the Only One to Raise Payout
- Money Morning:
The Best Place to Look For Income Today
Why Investors May Get a Flood of One-Time Dividends Soon
- The Wall Street Journal:
Stock Pickers Game the Fiscal Cliff
- Bloomberg News:
Special Dividends Surge Fourfold as U.S. Tax Increase Looms
Tags: avoid fiscal cliff effects, dividend investing, fiscal cliff, fiscal cliff 2013, fiscal cliff bargaining, fiscal cliff deal 2013, fiscal cliff definition, fiscal cliff impact on gdp, fiscal cliff sequestration, fiscal cliff stocks to buy, High-yield stocks, how to stop the fiscal cliff, how will fiscal cliff effect gold, how will fiscal cliff effect stocks and bonds, how will the fiscal cliff affect me, how will the fiscal cliff effect my investments, how will the fiscal cliff impact europe, investing for the fiscal cliff, Special dividend investing, Special dividends, Special dividends in 2012, the fiscal cliff 2013, what caused the fiscal cliff, what is the fiscal cliff, when do we hit fiscal cliff, when is fiscal cliff