For some companies, the special dividend appears to be a statement of opposition to possible tax increases.
"FOREGONE TAX RATES STIMULATE SHAREHOLDER PAYBACK," blares the headline to a press release from National Beverage Corp., the company behind Faygo and Shasta soft drinks. "'Patriotism' — If Only We Could Bottle It!" the release concludes.
Later, when National Beverage set the size of its special dividend at $2.55 per share, totaling, $118.1 million, it reassured investors that there would be no cash crunch. The decision was based in part on "a commitment by our largest shareholder to make available additional equity should the occasion develop," chairman and CEO Nick Caporella said in the announcement.
Caporella was referring to himself. He owns 74 percent of the company's outstanding shares, either directly or through a company he controls. For him, the special dividend was worth $87.3 million before taxes.
Under the current tax rate, he will pay about $13.1 million on the dividend. By taking money out of the company early, Caporella saved for himself as much as $24.5 million that might have gone to the government. National Beverage declined to comment.
Tom Pemberton, of Pemberton Financial Planning, says it's not unusual for companies to pay questionable special dividends to satisfy big shareholders — especially when they sit on the board.
"If I'm a large stockholder, I'm going to say, 'Hey, let's go ahead and have a special dividend,'" he says. He says ordinary investors shouldn't "buy the stock or not buy the stock because of the special dividend."
The market is rife with examples. The board of Opt-Sciences Corp., which makes special coatings for glass used in cockpits, declared a special dividend of 65 cents per share "to secure for the shareholders the benefits of the soon to be expiring current dividend tax treatment," president and CEO Anderson McCabe said in the announcement. The family of one director, Arthur Kania, controls nearly 66 percent of the company's stock.
Decisions like that are more common at small companies with relatively few shareholders, experts say. But big players sometimes get in on the act.
Oracle yanked into December a dividend of 18 cents per share, to replace the dividends it would have paid over the next three quarters. In the announcement, the company noted that "Oracle's CEO and largest stockholder did not participate in the deliberation or the vote on this matter" — a reference to billionaire CEO Larry Ellison, who owns about 23 percent of the company's stock. Oracle declined to comment.
Higher dividend taxes are likely, but they're not inevitable. Until lawmakers and President Obama have a deal, at least in theory, everything is on the table.
But the debate so far has focused on tax rates for the wealthy, with little noise about dividend rates. That's why so many companies have concluded that dividend rates are likely to rise next year.
By issuing special dividends, companies are making boasts of financial strength, Silverblatt says, and those companies must be able to stand behind them.
"It's a leap of faith to put out a large special dividend," he says, "especially when there's so much uncertainty out there."
Daniel Wagner can be reached at www.twitter.com/wagnerreports.
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