Fiscal Cliff Uncertainty; Oracle Becomes the Latest Company to Accelerate Dividend Payments

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On Tuesday, Redwood City, California-based Oracle (NYSE: ORCL) joined a growing list of companies that have accelerated their dividend payments or declared special dividends due to the looming threat of fiscal cliff.

Nearly $600 billion of automatic spending cuts and tax increases are scheduled to take effect on Jan. 1, 2013, if lawmakers fail to reach an agreement on reducing America’s mounting fiscal cliff before the year-end deadline. The tax increases include higher rates for dividends, and therefore a number of companies in the last few days have announced accelerated dividend payments or declared special dividends.

Oracle today said that its Board of Directors approved an accelerated dividend for its second, third, and fourth quarter. Oracle currently pays a quarterly dividend of $0.06 per share. The accelerated dividend payments total $0.18 per share and will be payable on Dec. 21, 2012 to shareholders of record as of close of business on Dec. 14, 2012.

Oracle noted that its CEO Larry Ellison, who is the company’s largest shareholder, did not participate in discussions or vote on the accelerated dividend payment issue. According to data from Thomson Reuters, Ellison is entitled to a dividend payment of around $198.9 million.

Oracle is one of the many companies in recent days that have announced accelerated dividend payments or special dividends. Here is a look at some of these other companies.

Costco (NASDAQ: COST): Last week the warehouse club operator announced that its Board of Directors approved a special cash dividend of $7 per share. The dividend will be payable on Dec. 18, 2012 to shareholders on record at close of business on Dec. 10, 2012.

Costco said that the special dividend will be in addition to its regular quarterly cash dividend of $0.275 per share.

Commenting on the special dividend, Costco’s Executive Vice President and CFO Richard Galanti said that the special dividend is the company’s latest effort in returning capital to its shareholders while maintaining its conservative capital structure. Galanti noted that the company’s strong balance sheet and favorable access to the credit markets allowed it to provide shareholders with the special dividend.

Wal-Mart (NYSE: WMT): The world’s largest retailer and Costco’s rival, Wal-Mart, last month said that its Board of Directors approved a change in the payment date of its regular quarterly dividend of $0.3975 per share to Dec. 27, 2012. The dividend was previously scheduled to be paid on Jan. 2, 2013. However, the uncertainty over the fiscal cliff issue prompted the company to bring forward its dividend payment date.

Guess? Inc. (NYSE: GES): The Los Angeles, California-based apparel retailer at the time of the release of its quarterly results last week said that its Board of Directors approved a quarterly cash dividend of $0.20 per share and a special cash dividend of $1.20 per share. The regular and special dividends will be paid on Dec. 28, 2012 to shareholders on record at close of business on Dec. 12, 2012.

Las Vegas Sands (NYSE: LVS): The casino operator last week announced that its Board of Director approved a special cash dividend of $2.75 per share. The dividend will be payable on Dec. 18, 2012 to shareholders on record at close of business on Dec. 10, 2012.

Las Vegas Sands’ Chairman Sheldon G. Adelson said that returning capital to shareholders remains a long-term priority for the company, including growing the annual dividend. Adelson noted that Las Vegas Sands is in an enviable position of returning capital to its shareholders while at the same time investing in growth thanks to the company’s strong balance sheet.

Oracle, Costco, Wal-Mart, Guess? and Las Vegas Sands are just a few of the companies that have accelerated their dividend payments or announced a special dividend in the last few days. The big question, however, is if companies that have declared special dividends or accelerated dividend payments could have used the cash to fund growth opportunities instead?

Another question is whether insiders are the ones that will benefit the most from special dividends or a shift in regular dividend payments?

The answer will vary from company to company. In the case of some companies, dividend payments may be the best use of cash. If this is the case then special dividends are certainly justified. Also, in case of a company like Costco, insiders are not the biggest beneficiaries. Therefore a special dividend payment in such a case again may be justified.

However, in the case of Las Vegas Sands and Guess?, special dividends may not be best use of cash. Las Vegas Sands’ Chairman Adelson and his family will receive over half of the company’s special dividend, which was announced last week. In case of Guess?, the Marciano family owns over a quarter of Guess? stock. In both cases, insiders stand to benefit the most from special dividends, and this may not please other shareholders in the company.

Whatever the case, one thing is for sure; companies across the board are concerned over the looming threat of fiscal cliff. While most analysts believe that lawmakers will reach some sort of deal before the year-end deadline and avert the fiscal cliff, U.S. corporations are not taking any chances.


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