Photo: 401(K) 2012 / Flickr
Earlier this morning, Costco surprised its shareholders by announcing a special cash dividend of $7.00 per share. And the share price is surging.Costco follows a slew of other companies announcing special dividends including Wynn Resorts, Las Vegas Sands, Sturm Ruger, and Brown-Forman, the maker of Jack Daniels.
So, why are companies suddenly dumping cash on their shareholders?
Well, the big catalyst seems to be the prospect of higher dividend tax rates as a consequence of the fiscal cliff. If nothing is done by the end of the year, Bush-era tax cuts will expire causing the dividend income tax to surge from 15 per cent to 43.4 per cent.
“The 2001/2003 tax cuts were originally set to expire at the end of 2010, though, after months of political negotiations, the rates were extended in the final weeks of that year,” wrote Robert Boroujerdi of Goldman Sachs. “Indeed, 2010 saw the highest number of one-time dividend announcements, more than double the run-rate of 2000-2011 period.”
Boroujerdi provided a list of companies he thought would surprise investors before the year ended. Indeed, some have already announced a dividend. NOTE: The ratios in the table below are based on September 21, 2012 stock prices:
Photo: Goldman Sachs
In a report published earlier this month, Markit also predicted Q4 would be a big quarter for special dividends based on the same rationale.
Here’s Markit’s predictions for special dividend payers: