Special dividends surge fourfold as tax increase looms in U.S.

Insider Ownership

Like Jonas, chairmen were listed among the top-two shareholders in several of the 59 companies paying special dividends before year-end, including Masimo Corp., Progressive Corp. and NewMarket Corp.

With Democrats retaining and expanding their majority in the Senate and picking up House seats in the election, Obama may have more leverage to reach a revenue-boosting budget deal with Republicans, who campaigned against raising tax rates. Both parties are under pressure to negotiate an accord before the so- called fiscal cliff of automatic tax increases and spending cuts kicks in at the start of 2013.

Dividends are regaining popularity after falling out of favor in the 1990s amid rapidly rising stock prices led by Internet-related companies and a trend toward share repurchases as way to return cash to investors.

‘Big Catalyst’

Investors see dividends as a counter to sluggish earnings growth amid a worldwide economic slowdown and to low interest rates that have cut fixed-income returns, said Ron Graziano, a Chicago-based global accounting specialist with Credit Suisse Group AG’s Holt unit.

A special dividend is a good tool for reducing companies’ cash holdings because, similar to a share repurchase, it doesn’t commit the company to a regular payout, Graziano said in a phone interview. The move makes even more sense with the looming increase in the tax rate, he said.

“Record amount of cash on the balance sheet, the demand of yield and return of capital by investors, and the pending tax rules are all three pieces that are coming together as a big catalyst for this increase in special dividends,” he said.

Raising the tax rate will steer companies away from dividends and may ultimately reduce government revenue, Steve Wynn, chief executive officer of Las Vegas-based Wynn Resorts, told analysts and investors on an Oct. 24 conference call. Wynn Resorts declared an $8-a-share dividend, including the regular 50-cent quarterly amount, payable on Nov. 20.

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