Reuters - Video

EDITION: U.S. | U.K. | IN

Business

Special dividends: naughty or nice?

Friday, November 30, 2012 - 02:27

Nov. 30 - Hundreds of companies are planning to distribute special dividends this year in order to avoid possible tax rate hikes next year, but are these payouts in the best interest of shareholders? Conway G. Gittens reports.

▲ Hide Transcript

View Transcript

Whole Foods is doing it...so is Costco. And according to Standard and Poor's nearly half of all S&P 500 companies are preparing to pay out dividends, and the number is growing by the hour. Companies are either giving shareholders a special end-of-the-year dividend or moving up scheduled dividends in order to avoid a possible spike in tax bills next year, due to the fiscal cliff. Tom Lee of JP Morgan thinks these dividends are a great idea. SOUNDBITE: TOM LEE, CHIEF U.S. EQUITY STRATEGIST, JP MORGAN (ENGLISH) SAYING: "The reason you own stocks is to own stocks for dividends and for capital gains and getting a large dividend is very good. In fact, most people will reinvest that special divided, which means that it actually ends up helping the stock over the long run because obviously if you're getting paid a hundred dollars in dividends and it's being reinvested it's going to push up the stock price." Number crunchers at Credit Suisse say on average companies announcing a special dividend outperform the broader market in a trend dating back to the year 2000. Research analyst Pankaj Patel: SOUNDBITE: PANKAJ PATEL, GLOBAL HEAD QUANTITATIVE RESEARCH, CREDIT SUISSE (ENGLISH) SAYING: "Announcement day we do see a pop of one percent compared to the benchmark, so it does give a boost to the stock, when they announce and then if you look for the next one month, or about 21 trading days, they still go further 1.2 percent higher than the benchmark. So there is that increase in return of the price appreciation comes when the companies do that." But there are critics who say the payouts could be better used putting Americans back to work or investing in upgrades. S&P 500 companies are sitting on a one trillion dollar stockpile, according to calculations by Thomson Reuters of Q3 cash, and Standard and Poor's is expecting a record $278 billion of that to be shelled out before the tax man cometh. But Lee says companies have little choice in cash usage given the current economic and fiscal climates. SOUNDBITE: TOM LEE, CHIEF U.S. EQUITY STRATEGIST, JP MORGAN (ENGLISH) SAYING: "We do want a portion of it to be invested in capital spending or to buy back stock, but we also know companies that if they don't have a lot of projects in front of them, it's a misuse of cash to just buy plant and equipment that they just don't need." But buyer beware; most professionals say don't go chasing after dividend paying stocks because the scope and size of these dividend payments could be a once in a lifetime event.

Press CTRL+C (Windows), CMD+C (Mac), or long-press the URL below on your mobile device to copy the code

Special dividends: naughty or nice?

Friday, November 30, 2012 - 02:27

Top News »

Investing 201 »

Arian Foster = BlackBerry? Arian Foster = BlackBerry?

Fri, Oct 25, 2013 - (3:16)

Don’t miss these red flags for IPOs Don’t miss these red flags for IPOs

Thu, Oct 10, 2013 - (2:34)

Copycat currency trading Copycat currency trading

Wed, Oct 02, 2013 - (2:28)

When to dump a winner When to dump a winner

Tue, Sep 24, 2013 - (1:55)

Where gold might again attract Jim Rogers Where gold might again attract Jim Rogers

Thu, Sep 19, 2013 - (2:05)

Why savings interest rates won't budge Why savings interest rates won't budge

Fri, Sep 13, 2013 - (2:09)

Buy local? ETFs try the trend Buy local? ETFs try the trend

Thu, Sep 05, 2013 - (2:42)

The better bond funds The better bond funds

Wed, Aug 07, 2013 - (2:40)

Best bargain in 40 years? European stocks Best bargain in 40 years? European stocks

Thu, Aug 01, 2013 - (2:24)

Invest like an activist Invest like an activist

Fri, Jul 26, 2013 - (2:49)

Money Clip »

3 things to do before disaster strikes 3 things to do before disaster strikes

Wed, Sep 18, 2013 - (1:39)

Your must-do money list Your must-do money list

Wed, Sep 11, 2013 - (1:24)

The worst "best" financial advice The worst "best" financial advice

Wed, Sep 04, 2013 - (1:42)

Forget gold: The case for REITs Forget gold: The case for REITs

Fri, Apr 26, 2013 - (1:19)

3 rules for buying a house now 3 rules for buying a house now

Thu, Apr 18, 2013 - (1:39)

“Stalking” your dream home - Money Clip “Stalking” your dream home - Money Clip

Wed, Mar 27, 2013 - (2:50)

3 hidden tax deductions - Money Clip 3 hidden tax deductions - Money Clip

Thu, Mar 21, 2013 - (1:33)

Moving Pictures »

Still missing – MH370 Still missing – MH370

Fri, Sep 05, 2014 - (2:05)

Images of August Images of August

Fri, Aug 29, 2014 - (1:00)

Burning Together Burning Together

Mon, Sep 01, 2014 - (2:23)

Mending dolls, teddies and hearts Mending dolls, teddies and hearts

Fri, Aug 22, 2014 - (3:12)

"Old timers" sail the Chesapeake Bay "Old timers" sail the Chesapeake Bay

Mon, Aug 11, 2014 - (2:27)

Burned memories Burned memories

Fri, Aug 08, 2014 - (3:02)

Images of July Images of July

Thu, Jul 31, 2014 - (1:20)

World Cup: passion on the pitch World Cup: passion on the pitch

Fri, Jul 11, 2014 - (1:00)

A refugee in America gives back A refugee in America gives back

Wed, Jul 02, 2014 - (3:25)

A long search for refuge A long search for refuge

Fri, Jun 20, 2014 - (3:04)

Reuters Investigates »

Re-homing victim: "I could have been dead" Re-homing victim: "I could have been dead"

Wed, Feb 19, 2014 - (8:24)

Cops and loggers in the Amazon rainforest Cops and loggers in the Amazon rainforest

Fri, Jan 10, 2014 - (4:01)

"Passed around like a dog" "Passed around like a dog"

Thu, Aug 29, 2013 - (6:32)

Adopted, then abandoned online Adopted, then abandoned online

Thu, Aug 29, 2013 - (13:21)

How the DEA keeps its secrets secret How the DEA keeps its secrets secret

Mon, Aug 05, 2013 - (1:36)

How education lost its role as the great equalizer - Reuters Investigates How education lost its role as the great...

Mon, Dec 17, 2012 - (7:52)

Jihad Jane: From abused child to American jihadist - Reuters Investigates Jihad Jane: From abused child to American...

Sat, Dec 08, 2012 - (10:01)

Jihad Jane: The order to kill - Reuters Investigates Jihad Jane: The order to kill - Reuters...

Sun, Dec 09, 2012 - (10:39)