Photo: 401(K) 2012 / Flickr
If there’s one component of the fiscal cliff that should have stock market investors freaked out, it’s the risk of higher dividend and capital gains taxes.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.
This is bad news for investors who bought dividend paying stocks for that cheap income.
One way that companies can make their shareholders happier is to dump some cash on their laps via a “special dividend” before the dividend tax goes up.
“With the rates set to rise we see increased potential for liquidity events ahead of the change,” wrote Goldman Sachs’ Robert Boroujerdi in a September note to clients.
Boroujerdi also pointed to the wave of special dividends in 2010, when the tax rate was initial set to reset:
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. Indeed, 2010 saw the highest number of one-time dividend announcements, more than double the run-rate of 2000-2011 period.
Since the crisis, corporations have become cash rich. But with the global recovery anemic, corporate investment opportunities have been limited.
And because cash offers little return these days, one of the more prudent actions for companies has been to buy back stock or offer dividends.
Here’s a list of stocks that Boroujerdi’s team predicted would offer some special large cash payouts before the year ends. NOTE: The ratios are based on September 21, 2012 stock prices.
Photo: Goldman Sachs
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