Special Dividends: Why and Who is Giving the Most Bang for the Buck?

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.


On Wednesday Costco (NASDAQ: COST) took the market by storm when the company announced a special dividend of $7! On the day that followed there were several other companies electing to pay special dividends. In this article I am looking at why a company would pay a special dividend, which companies are following suit, and which are giving the most to shareholders.

First off, there are several reasons a company might want to pay a special dividend: A) it’s a PR stunt and keeps shareholders happy B) It allows the company to “give back” without hiring or expanding C) will maintain support for the stock as a sign of confidence regardless of the fiscal cliff or market conditions.

Personally, I was shocked at Costco’s decision to implement the $7.00 a share special dividend for shareholders as of the December 10 record date. This is a company that I argued with for 30 minutes when trying to return a $100 safe. Yet they are quick to use proceeds from senior unsecured notes and financing to pay for the $3 billion payout.

It’s obvious that the $3 billion special dividend was a PR stunt, an expensive one, but also one that worked. The stock has rallied by more than 6% since announcing the news, adding $2.4 billion to its market cap. Therefore, the gains almost took care of the cost to pay the dividend, and I think it makes sense that other companies might view the special dividend the same way as Costco. Take a look at a few of the companies that announced special dividends on Thursday.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Ticker</p> </td> <td> <p>Market Cap (millions)</p> </td> <td> <p>Special Dividend</p> </td> <td> <p>Estimated Dividend Cost (millions)</p> </td> </tr> <tr> <td> <p><strong>Systemax</strong></p> </td> <td> <p><strong><span class="ticker" data-id="205634">(NYSE: <a href="http://caps.fool.com/Ticker/SYX.aspx">SYX</a>)</span></strong></p> </td> <td> <p>$363</p> </td> <td> <p>$0.25</p> </td> <td> <p>$9.13</p> </td> </tr> <tr> <td> <p><strong>Contango Oil & Gas</strong></p> </td> <td> <p><strong><span class="ticker" data-id="207022">(NYSEMKT: <a href="http://caps.fool.com/Ticker/MCF.aspx">MCF</a>)</span></strong></p> </td> <td> <p>$620</p> </td> <td> <p>$2.00</p> </td> <td> <p>$30.38</p> </td> </tr> <tr> <td> <p><strong>KBW</strong></p> </td> <td> <p><strong><span class="ticker" data-id="209659">(NYSE: <a href="http://caps.fool.com/Ticker/KBW.aspx">KBW</a>)</span></strong></p> </td> <td> <p>$591</p> </td> <td> <p>$2.00</p> </td> <td> <p>$69</p> </td> </tr> <tr> <td> <p><strong>Stein Mart</strong></p> </td> <td> <p><strong>(NASDAQ:SMRT)</strong></p> </td> <td> <p>$374</p> </td> <td> <p>$1.00</p> </td> <td> <p>$43.75</p> </td> </tr> </tbody> </table>

As you can see there are many companies that are hoping to achieve the same effect as Costco by announcing a special dividend, mostly in afterhours on Thursday. However, all of these companies are smaller, meaning these special dividends might fly under-the-radar, or are not as public as Costco’s.

With Costco spending $3 billion on its special dividend, the company is spending about 6.8% of its market cap on a payout to investors. This is a very large dividend, a nice return to shareholders, therefore was deserving of the movement. With that being said, I will leave you with three pieces of information: the record date, the payable date, and the percentage of market cap for the companies above that are paying this special dividend.

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Record Date</p> </td> <td> <p>Payable Date</p> </td> <td> <p>Percentage of M.C.</p> </td> </tr> <tr> <td> <p>Systemax</p> </td> <td> <p>Dec. 12</p> </td> <td> <p>Dec. 21</p> </td> <td> <p>2.50%</p> </td> </tr> <tr> <td> <p>Contango Oil & Gas</p> </td> <td> <p>Dec. 10</p> </td> <td> <p>Dec. 17</p> </td> <td> <p>4.90%</p> </td> </tr> <tr> <td> <p>KBW</p> </td> <td> <p>Dec. 10</p> </td> <td> <p>Dec. 17</p> </td> <td> <p>11.65%</p> </td> </tr> <tr> <td> <p>Stein Mart</p> </td> <td> <p>Dec. 10</p> </td> <td> <p>Dec. 24</p> </td> <td> <p>11.68%</p> </td> </tr> </tbody> </table>

You can then see which company is being the most generous and then take the information and play it however you wish; perhaps buying the stock that is returning the most bang for your buck? Or maybe even invest in one of these companies after additional due diligence, because maybe this dividend is a sign of things to come from one if not all of these companies.

BrianNichols has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus