With possible tax increases looming, it’s a special dividend bonanza these days with companies such as Costco doling out the green to shareholders. How do you grab some of that cash? Can you just buy a stock to benefit from the giveaway?
Well, not exactly. The corporations now announcing new special dividends are also posting an ex-dividend date. That date’s the one by which you need to own a stock in order to receive an announced dividend. For more information, go to the Securities and Exchange Commission’s explanation.
Ambitious traders may try to predict which company is going to pony up an extra dividend next, but that’s tricky, the pros tell Reuters in this article.
“Spotting them is easier said than done,” the article says. “Don Taylor, a portfolio manager for the $8.5 billion Franklin Rising Dividends fund (FRDPX), said that U.S.-focused companies like retailers, insurers and grocers are the most likely to announce special dividends because most of their profits are already subject to U.S. taxes.
“‘One of the problems with companies with very strong balance sheets is that if the cash is overseas, you don’t want to bring it home because of corporate tax rates,’ he said. Global technology and industrial firms are less likely to announce additional payouts, he said.
“‘Companies with high rates of insider ownership are strong candidates, said S&P’s (Howard) Silverblatt. ‘It’s an easier decision to make when it hits home right away,’ he said.
“Companies that have a lot of cash on hand, a payout ratio of less than 40 percent and board members who themselves hold a lot of shares may also be worth considering.”
But trying to second-guess which company will pitch more money to shareholders may not be the wisest strategy.
The article notes: “Long-term investors should focus instead on companies that are able to raise their dividends consistently, said Rick Helm, a portfolio manager of the $234 million Cohen & Steers Dividend Value fund. Because these companies manage their balance sheets with payouts in mind, they tend to have higher valuations and are more stable over time than comparable firms.”
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