It appears the dreaded fiscal cliff is good for something.
"Something" being the spate of special dividend news investors
have been treated to in recent days. Amid fears the fiscal cliff
will not be settled before year-end, companies (and investors)
are fearful the dividend tax rate will soar in 2013.
Those fears have prompted a special dividend outbreak as
companies ranging from Las Vegas Sands (NYSE:
) to Costco (NASDAQ:
) have announced special payouts to investors that will be taxed
at the current dividend tax rate of 15 percent. Speaking of
Costco, the warehouse store operator today announced a special
dividend of $3.07 billion, thus far the largest of the special
payouts to be announced.
The fiscal cliff has prompted an increase number of special
dividends. Just this quarter, 63 companies have announced special
dividends compared with 44 all of last year,
according to CNBC
. That elevated means it is tempting for investors to guess what
companies will be next to unveil these lucrative payouts, but
rather than play the guessing game, sector
could prove to be the more practical bet. Consider the
Market Vectors Gaming ETF (NYSE:
Las Vegas Sands (NYSE:
), the owner of the Palazzo and Venetian, announced a special
dividend of $2.75 per share earlier this month. That move
followed a juicy $7.50 per share special dividend announced by
rival Wynn Resorts (NASDAQ:
) in the third quarter.
Those two companies combine for nearly 15 percent of BJK's
weight. Conventional wisdom holds that with Las Vegas Sands and
Wynn being the dominant names among casino stocks, the special
dividends announced by these firms could trigger similar moves
from rivals that are also BJK constituents. For now, that is just
speculation. However, the good news is investors can still get in
on the Sands special dividend, which will be paid on December 18
to shareholders of record as of December 10.
Technology Select Sector SPDR (NYSE:
In 2012, the technology sector has become the largest
dividend-paying group in the U.S. and expectations are that
dividend growth in the tech space will be lucrative in the coming
years. That is if the fiscal cliff is avoided.
Assuming that the boards of tech companies let fiscal cliff
fears get the better of them, it is reasonable to expect multiple
special dividend announcements from some of the names found in
the Technology Select Sector SPDR. XLK, and the tech sector in
general, make for obvious special dividend candidates for two
First, companies need to have sturdy cash positions to pay
special dividends and many of XLK's holdings are among the most
cash-rich firms in the U.S. Second, another clue investors want
to look for about special dividend contenders is inside
ownership. For example, Microsoft (NASDAQ:
) CEO Steve Ballmer is a major holder of his company's stock.
Another example is Steve Jobs's widow being a significant
shareholder of Apple (NASDAQ:
It may sound trite, but insiders like dividends just as much
as retail investors. Apple, Microsoft and Oracle (NASDAQ:
) all stand as valid special dividend candidates given their
robust cash positions. Those three stocks combine for about 31
percent of XLK's weight.
First Trust Energy AlphaDEX Fund (NYSE:
The First Trust Energy AlphaDEX Fund is a "looser" special
dividend candidate than the other ETFs highlighted here for a
couple of reasons. First, for as much cash some of the major
integrated oil names have on their balance sheets, the energy
sector has not yet been heralded as a potential special dividend
mecca. Second, given the massive floats of stocks such as Exxon
) and Chevron (NYSE:
), insider ownership is small on a percentage basis.
Along those lines, it must be noted FXN is home to 52 stocks
and the ETF is weighted much differently than rival funds such as
the Vanguard Energy ETF (NYSE:
) or the Energy Select Sector SPDR (NYSE:
). No single stock accounts for more than 3.86 percent of FXN's,
which says it will take multiple special dividend announcements
to really move the needle here.
It is possible. A case can be made that roughly 20 percent of
FXN's constituents are legitimate special dividend candidates.
Murphy Oil (NYSE:
) has already been hailed as one. Apache (NYSE:
) can afford a special dividend as well. Even before all the
fiscal cliff chatter, Diamond Offshore had a tradition of special
payouts. National Oilwell Varco's (NYSE:
) cash position is conducive to a special dividend as well. That
is just four names, but FXN has more that could deliver the
dividend goods before year-end.
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