How to Take Advantage of Special Year-End Dividend Payments
Wednesday, November 28th, 2012
By Sasha Cekerevac, BA for Profit Confidential
With the year soon coming to a close, an increasing number of firms are making special dividend payments to get ahead of the expected hike in taxes next year. This investment strategy to make special one-time dividend payments is a direct result of the inability of our political leaders to come up with long-term solutions for our tax policies.
One of the biggest problems when devising an investment strategy is dealing with uncertainty regarding taxes and regulation. How can a person or company develop an investment strategy—whether it’s regarding dividend payments or capital allocation to plant and equipment—if we don’t know what the tax rates will be over the next few years?
Short-term changes that are temporary in nature do not have the same effect as permanent, structural changes to the system. People are smart enough to realize that a temporary tax adjustment is just that, temporary. When certainty is known, people take appropriate action regarding their investment strategy; we’re seeing that now with a lot of companies issuing special dividend payments ahead of the certainty regarding the increase in tax rates next year.
I previously mentioned this phenomenon in my article “How You Can Beat the Higher Taxes Coming Up,” and since then, we’ve had several more companies issue special dividend payments as an investment strategy. Compared to last year, companies are issuing one-time dividend payments at four times the rate, due to the shift in next year’s tax policies. (Source: “Las Vegas Sands’ Adelson Earns $1.2 Billion From Dividend,” Bloomberg, November 27, 2012.)
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Las Vegas Sands Corp. (NYSE/LVS) recently joined a group of companies issuing special dividend payments by issuing a $2.75-per-share dividend on December 18 for shareholders of record on December 10, 2012. In addition to the one-time payment, Las Vegas Sands is also increasing its regular dividend by 40% to $1.40 per share. (Source: “Las Vegas Sands’ Adelson Earns $1.2 Billion From Dividend,” Bloomberg, November 27, 2012.)
When researching companies issuing special dividend payments as an investment strategy, one of the common characteristics is that many of them have a major shareholder with a controlling interest in the company. Because of this, they have a lot to gain personally by getting ahead of the tax hikes next year.
Las Vegas Sands is run by Sheldon Adelson, who owns approximately 52% of the stock. This one-time payment will be worth approximately $1.2 billion for Adelson’s stake in the company. With the dividend tax rate set to rise substantially next year, it makes perfect sense as an investment strategy for major controlling shareholders to issue a one-time dividend payment to take advantage of the lower rates currently offered.
When investigating and speculating on which companies may offer one-time dividend payments before the year’s end, I would suggest looking for companies with major controlling shareholders who would personally benefit with the lower tax rate. One company that perhaps might issue such a payment is Oracle Corporation (NASDAQ/ORCL).
Oracle is run by Larry Ellison, who owns a large stake in the firm. Oracle also has quite a lot of cash on hand, which it could deploy in the same type of investment strategy as these other firms issuing one-time dividend payments. Of course, this is just speculation on my part, and considering we only have a few weeks left until the end of the year, we’ll know soon enough. Personally, if I ran a company with a large amount of cash sitting idle, I would seriously consider issuing one-time dividend payments as a tax-planning investment strategy.
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