Published November 20, 2012
Wal-Mart (WMT) moved up the date for its fourth-quarter dividend payment, as dividend taxes are set to rise next year to an all-in top rate of more than 44% for upper income bracket earners from 15%, including the tax hikes in health reform.
Wal-Mart isn’t the only company issuing special dividends in advance of the tax hikes, even if they are only one-offs.
Gyrodyne Company of America (GYRO), a real estate investment trust, just announced a whopping $38.30 per share special dividend. Firearm maker Sturm Ruger & Co. (RGR) also announced a special dividend of $4.50 a share payable on Dec. 21. Wynn Resorts (WYNN) will pay out a total of $750 million in special dividend before year end. So will Masimo Corp (MASI), IDT (IDT) and NewMarket Corp. (NEU). So will Progressive (PGR).
Healthcare company HCA Holdings (HCA) and LyondellBasell (LYB), a chemicals maker, also plans special dividends, as well as money manager Waddell & Reed (WDR). Tyson Foods (TSN) is paying out a dime a share, Carnival Corp. (CCL) is giving a special dividend of 50 cents, Franklin Resources (BEN), $3, and Westlake Chemical (WLK) is paying $3.75 in special dividends
Initially, Wal-Mart was supposed to pay its regular fourth-quarter dividend of about 40 cents a share on January 2, 2013. It will now move that date up a week, to Dec. 27, 2012, giving its investors a nice year-end gift of extra money.
"Wal-Mart's board recognized that there are complex fiscal and federal tax rate issues that may not be resolved in the next few weeks, despite the ongoing good faith negotiations between the administration and Congress to resolve details related to the fiscal cliff," the company said in a statement. "In light of this uncertainty, the Board determined that moving our dividend payment up by a few days to 2012 was in the best interests of our shareholders."
Steve Wynn already previewed his resort and casino company’s special dividend in an October conference call with investors — with a slap at the federal lawmakers.
“The dividend policy of companies is very often affected by the tax policies of the government,” he said at the time, according to a transcript of the call. The chief executive added: “When the taxes on the dividends are too high, then companies don’t distribute, the shareholders don’t get the dividends and Uncle Sam doesn’t get the tax.”
Companies can afford the special dividends, with S&P 500 companies touting an estimated $900 billion in cash on their balance sheets, up 41% from four years ago. Overall, companies are estimated to have parked $2.3 trillion on their balance sheets in cash and short-term securities.
But they’re making the special dividend payouts in a weak sales environment. Of the 476 S&P companies that have officially reported quarterly earnings so far, 65% have exceeded analysts’ earnings estimates, but just 40% have beat sales estimates.
Industries that typically pay the biggest dividends, including utilities, telecommunications and health care, will be most affected by a higher tax rate, David Bianco, chief U.S. equity strategist for Deutsche Bank AG, has already said in a November report.
Barclays Capital says utilities shares and telecom stocks are already getting hurt from the coming tax hikes, down 8% and 10%, respectively, so far this month. Wall Street companies like Goldman Sachs (GS) have been forecasting a rise in special dividends before year end, predicting Williams-Sonoma and MasterCard (MA) might join the crowd.
Kansas City’s Commerce Bancshares has already announced a one-time dividend of $1.50 a share on top of its 23-cent payout.
The fashion retail company Buckle of Kearney, Neb., also announced a $4.50 special dividend on top of its regular 20-cent quarterly dividend. Trinity Bank says it will pay a special, one-time dividend to shareholders of $1 per share in addition to its second cash dividend of 20 cents.
"We don't know what the dividend tax rate will be in 2013, but we know it will be higher. We can provide some tangible return now to our shareholders in the most tax-advantageous manner possible " said Jeffrey Harp, Trinity president, in a statement.