As the so-called fiscal cliff approaches, companies have been
shoveling out dividends to help investors avoid enormous potential
tax increases. But are the companies' intentions truly in the best
interest for the shareholders?
With the threat of the possible fiscal cliff tax increases, many
companies have been paying early dividends as well as offering
investors special dividends. If the tax increases do occur, the
taxes on dividends could increase by over 60% from the current tax
rate of 15% to a tax rate of over 40%, depending on investors' tax
Many companies that previously planned to pay dividends in
January or later, are now paying out their dividends in December,
saving their shareholders from the drastic potential increase in
dividend taxes. Regular dividends for many companies have been
pushed up to help shareholders, but there have also been several
companies who, in addition to moving up regular dividends, are
paying special dividends as well.
Who Really Benefits?
We've seen a record 100+ companies join the new special dividend
trend, including The Walt Disney Company (
), Guess, Inc. (
), Las Vegas Sands (
), and Wynn Resorts (
). These companies' largest shareholders, often founders or the
families of founders, will benefit the most from these payouts
(since they own the most shares).
Most recently, Costco Wholesale Corporation (
) has been stirring up its share of controversy. The company
reported it will be paying a $7 per share special dividend on on
December 18, to shareholders of record on December 10. However, the
company also reported that they will be borrowing over $3 billion
to pay for this special dividend. That's the full amount the
company intends to pay out. It will have to pay back that money to
lenders, plus interest.
In theory, a dividend, especially a special dividend is extra
cash a company has in which they decide to distribute back to their
investors. The idea of borrowing money in order to pay a dividend,
which the company has no obligation to pay, does not make
However, if you take a closer look at the shareholders, you will
realize that most of the company shares are owned by insiders.
Ironically, COST's co-founder Jim Sinegal will cash out from their
special dividend with his ownership of 2 million of the company's
shares. At $7 per share, Sinegal will make an exceptional profit
from this dividend, at the company's expense.
Although other companies are actually using money that they
already have to pay these special dividends, Costco is not the only
company where insiders benefiting excessively. Sheldon Adelson,
founder of Las Vegas Sands will profit from over half of LVS's $2.2
billion special dividend which will be paid next week.
Additionally, the Marciano family will see a large cash flow from
Guess, and the Walton family will benefit from Wal-Mart's early
dividend, as well as their stake in Wynn Resorts.
Although offering early dividends and special dividends prior to
the fiscal cliff will help regular shareholders avoid high taxes,
the outrageous special dividends have the greatest benefit to the
Costco shares were down 85 cents, or -0.84% during Thursday
Costco Wholesale Corporation(
) is not recommended at this time, holding a Dividend.com DARS™
Rating of 3.4 out of 5 stars.
Be sure to visit our complete recommended list of the
Best Dividend Stocks
, as well as a detailed explanation of
our ratings system here