* More than 30 special dividends announced this quarter
* Credit Suisse, Citi cite 40 more candidates
* Debt markets an attractive option to fund
By Caroline Valetkevitch and Ben Berkowitz
Nov 30 Dozens of companies have declared special
cash dividends ahead of potential tax increases next year,
leading analysts to speculate on at least 40 more that might
return large quantities of cash before the end of this year.
For shareholders of some of those companies, like drugstore
chain Walgreen Co and for-profit education provider
Apollo Group Inc, such a payout may turn into a welcome
The problem -- or opportunity, depending on your point of
view -- is the "fiscal cliff," a combination of tax increases
and spending cuts due to kick in at the beginning of 2013 if
Congress and the White House cannot agree on a plan to reduce
the federal budget deficit.
Without a solution, dividend taxes could more than double
for some people. Especially for companies with heavy insider
ownership, that has added a sense of urgency to deliberations
around paying or raising dividends, which is why more than $10
billion is headed back to investors in coming weeks.
"People are preparing for a different tax regimen, and it
makes sense. I think people can get carried away with this as
well because we just don't have the details on what the
difference is going to be in capital gains taxes," said Stephen
Massocca, managing director at Wedbush Morgan in San Francisco.
Already more than 30 companies have declared special
dividends this quarter, according to Credit Suisse research,
well more than in any year going back to at least 2000.
Some, like Las Vegas Sands and Guess, will
largely go to insiders, though others like Costco will
be distributed much more broadly.
Generally speaking, high levels of insider control are
considered a good predictor of special dividends, although
governance experts also frown on the implications.
"It always makes us suspicious when you have significant
dividends being paid out to controlled companies," said Paul
Hodgson, chief research analyst at governance group GMI Ratings.
"The very people making decisions whether to pay those dividends
out are the ones most likely to benefit from them."
DOZENS OF COMPANIES NAMED
In an attempt to predict what other companies might go the
special dividend route, Credit Suisse put together a model that
takes into account capital expenditures, research and
development expenditures, interest expense, growth rates and the
level of insider holdings.
The list runs the gamut of sectors, but it leans mostly
toward consumer products and services, and financials.
Of the 41 companies Credit Suisse identified as likely to
initiate a payout, 12 of them already have. Of those that have
not, the five considered most likely are Walgreen Co,
Public Storage, NVR Inc, Apollo Group Inc
and John Wiley & Sons Inc.
A Walgreen spokesman declined to comment. Representatives of
the other companies were not immediately available to comment.
Credit Suisse is not the only firm trying to predict the
future. Earlier this week, Citi Research produced a list of 15
companies it considers likely to make a payout, based on insider
holdings, cash on hand and leverage.
Citi did not score who was more or less likely to pay, as
Credit Suisse did, although four companies did appear on both
lists, including Walgreen.
In both cases, debt is a key factor. While many companies
that have already declared dividends have the cash to fund them,
some like Costco are taking advantage of cheap debt financing to
pay them out instead.
November was the second-largest month for investment-grade
debt since at least 1980, with issuance at more than $120
billion, according to the Thomson Reuters Investment Banking
"If they're going to do it, they've got to do it fast. The
window is shutting down fast," said Fred Dickson, chief market
strategist with D.A. Davidson & Co in Oregon.
(Reporting By Caroline Valetkevitch in New York and Ben
Berkowitz in Boston; Writing By Ben Berkowitz; Editing By Grant