Editor's Choice

Here Come the Special Dividends!

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

Sometimes there's nothing better than getting a little extra change in your pocket.  Especially when it gets paid, unexpectedly, by the stock market.

With changes to the US tax code expected to occur in 2013, special dividends have generated a lot of hype lately.  Take a look at some of the special dividends that have been either recently paid or are planned before year-end:

<table> <tbody> <tr> <td><strong><span><span>Company</span></span></strong></td> <td><strong><span><span>Recent Price</span></span></strong></td> <td><strong><span><span>Special Dividend</span></span></strong></td> <td><strong><span><span>Payable Date</span></span></strong></td> <td><strong><span><span>Yield</span></span></strong></td> </tr> <tr> <td><span>Costco</span></td> <td><span><span> $         101.14 </span></span></td> <td><span><span> $                      7.00 </span></span></td> <td><span>18-Dec</span></td> <td><span>7%</span></td> </tr> <tr> <td><span>Las Vegas Sands</span></td> <td><span><span> $           46.36 </span></span></td> <td><span><span> $                      2.75 </span></span></td> <td><span>18-Dec</span></td> <td><span>6%</span></td> </tr> <tr> <td><span>Buckle</span></td> <td><span><span> $           50.26 </span></span></td> <td><span><span> $                      4.50 </span></span></td> <td><span>21-Dec</span></td> <td><span>9%</span></td> </tr> <tr> <td><span>Brown-Forman</span></td> <td><span><span> $           66.28 </span></span></td> <td><span><span> $                      4.00 </span></span></td> <td><span>27-Dec</span></td> <td><span>6%</span></td> </tr> </tbody> </table>

Costco (NASDAQ: COST) is ringing up an economy-sized special dividend of $7 per share on December 18.  In addition to the $1.10 that it already pays out annually, shareholders are able to pocket an 8% yield at today's prices. 

Las Vegas Sands will try its luck with a special dividend this year.  The casino operator is dealing out $2.75/share also on December 18.  Counted alongside the $1/share of regular payouts (which was a new policy for LVS in 2012), shareholders are able to stack their chips to the tune of 8% in combined dividends.

Buckle (NYSE: BKE) has made paying special dividends into the latest fad.  The clothing store retailer has paid special dividends since 2005.  But they're really grabbing some attention in 2012.  This year's special payment of $4.50 is double what it paid out last year.  Along with the $0.80 that it pays annually, shareholders today are receiving a 10.5% yield at today's prices.

Lastly, Brown-Forman, who might be more easily recognized as the distiller of Jack Daniels and Southern Comfort whiskies, raised a few glasses by announcing a $4 special dividend will be paid on December 27.  Mixed with the $0.93 of regular dividends paid earlier this year, shareholders will receive a combined proof...er...yield of 7.5%.

Who's Next?

You'll notice from the above list that the companies paying special dividends are largely those with steady, consistent earnings.  Whether it's Costco's recurring membership base, gamblers' continual desire to try to hit blackjack, or the unique ability of alcohol to sell in both good and bad times, the companies share a dependable revenue stream with risk spread across millions of customers. 

Notoriously absent from the list above is one sector in particular:  technology.  Historically, technology companies have been stingy on payouts of any type - whether regular or special dividends - because they preferred to use the case for either acquisitions or to build out their product platforms. 

However, the emergence of the technology dividend suggests that there is potential that we might see special dividend announcements as well.  There are several tech companies that have matured into revenue generating machines, and they are flush with cash at the moment: 

<table> <tbody> <tr> <td>Company</td> <td><span>Market Cap ($B)</span></td> <td><span>Cash on Bal Sheet ($B)</span></td> <td><span>% of Mkt Cap in Cash</span></td> </tr> <tr> <td>Microsoft</td> <td><span><span> $                                 229 </span></span></td> <td><span><span> $                                    63 </span></span></td> <td><span>28%</span></td> </tr> <tr> <td>Apple</td> <td><span><span> $                                 549 </span></span></td> <td><span><span> $                                    29 </span></span></td> <td><span>5%</span></td> </tr> <tr> <td>Google</td> <td><span><span> $                                 222 </span></span></td> <td><span><span> $                                    45 </span></span></td> <td><span>20%</span></td> </tr> </tbody> </table>

Microsoft (NASDAQ: MSFT) users have switching-costs, largely due to years or decades of familiarity with using Windows or Office software.  Though tablet-devices and cloud computing have introduced a considerable amount of risk, Microsoft has a steady revenue stream from a good chunk of Corporate America.

Apple (NASDAQ: AAPL) has notoriously hooked its customers into their ecosystem.  All of the i-Everything gadgets can be synchronized with the back-end architecture of iTunes and iCloud, which keeps people coming back for more.  The handset replacement cycle of cell phones for Americans is only 22 months, which was the quickest turnaround time of anywhere in the world in 2010.  That's good news for the company that derives the majority of its revenue and profits from the iPhone.

Google (NASDAQ: GOOG) has still managed to resist paying a dividend.  But with a war chest of cash and the "widest moat" that Warren Buffett has ever seen, there's definitely a potential for an upcoming dividend from the search king.

Foolish Bottom Line

Special dividends can be quite a nice income bonus, especially when added to regular dividends paid by stocks in your portfolio.  Be on the lookout for revenues and earnings that are recurring in nature and able to support the payouts. 

And for those holding shares of special dividend payers, pick up something nice for your kids with the extra cash this Christmas.


TXinvestor82 owns shares of the Buckle, Microsoft, and Apple.  The Motley Fool owns shares of Apple, The Buckle, Costco Wholesale, Google, and Microsoft. Motley Fool newsletter services recommend Apple, The Buckle, Costco Wholesale, Google, and Microsoft. 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!

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