NEW YORK NEW YORK Nov 28 They might not arrive in pretty wrapping paper with a bow, but dividends paid out early to avoid a potential tax increase next year could provide an unexpected boost to holiday sales.
With tax rates on dividends set to more than double for many earners in 2013 if Congress does not reach a deal on the so-called fiscal cliff of tax increases and budget cuts, several companies are trying to get special dividends in "under the wire," notes Citigroup credit strategist Erin Lyons.
For most companies, special dividends are simply a shrewd business move designed to beat the tax man. But those dividends could also, at least marginally, further brighten the outlook for holiday shopping by putting more money in the pockets of consumers.
Money in the form of dividend payments that arrive before Christmas, instead of early next year, "may very well help Christmas sales, along with having a multiplier effect in terms of credit and borrowing," said Jason Ader, who runs New York-based investing firm Ader Investment Management and is a former Wall Street gaming analyst.
"Retailers have done an excellent job managing inventories so with the stimulus effect of the early dividends and good inventory management, it should be a pretty good season for retail," said Ader, who sits on the board of Las Vegas Sands (LVS.N), one of the companies paying a special dividend before the start of the new year.
Speaking at the Reuters Global Investment 2013 Outlook Summit, Ader said the holiday shopping season should be positive for retailers separate from the early dividend payouts because consumers are generally feeling better about the economy.
In fact, surveys show consumer confidence is at its highest since early 2008. A big reason for that is that consumers' views of current and expected employment conditions have improved, says Ray Stone, economist and managing director at Stone & McCarthy Research Associates in Princeton, New Jersey.
Household balance sheets have also strengthened since the depth of the financial crisis.
"Equities are up, home prices are up, and gasoline prices are down so consumers' net worth and real incomes have risen," said Steven Einhorn of the investment firm Omega at the Reuters Global Investment 2013 Outlook.
The National Retail Federation said sales for the four days from Thanksgiving to Sunday rose 12.8 percent from the same period last year, well above the 4.1 percent gain the trade group expects for the whole season.
Retailer Costco Wholesale Corp (COST.O) said on Wednesday it would pay a special dividend totaling roughly $3 billion, the largest payout so far from any company ahead of the possible increase in the U.S. dividend tax.
Several companies declared one-time cash payouts this week before the possible increase in the dividend tax rate.
Las Vegas Sands Chairman Sheldon Adelson, a billionaire Republican donor, announced a special dividend totaling about $2.27 billion, based on the number of shares outstanding as of September 30. More than half of that sum will benefit Adelson and his family.
Department-store operator Dillard's Inc (DDS.N) announced a special dividend of $5 per share and spirits company Brown-Forman Corp (BFb.N) declared a $4-a-share special dividend.
Family members are three of the top 11 shareholders at Dillard's and two of the nine largest Brown-Forman shareholders are affiliates of the Brown family.
Wynn Resorts Ltd (WYNN.O) paid a dividend of $8 per share, including a regular 50-cent payout, in early November, ahead of the possible tax increase. Chief Executive Stephen Wynn and his ex-wife, Elaine, each individually own nearly 10 percent of the stock.
Special dividends graphic: link.reuters.com/mur34t
On November 19, Costco's biggest rival, Wal-Mart Stores Inc (WMT.N), moved its planned dividend to late December from early January to help shareholders avoid any increase in the tax rate. The family of founder Sam Walton owns just over half of the company's shares.
Some analysts believe giant tech companies with a lot of cash on their balance sheets could be next to offer early dividend payouts.
(Additional reporting by Jessica Wohl; Editing by Steve Orlofsky)