Markets

Buy These Stocks This Week, Get Special Dividends

For some shareholders, Christmas came a few months early this year.

With every earnings season comes announcements of success, failure and future projections. The outperformers are often rewarded with better analyst ratings, boosted price targets and perhaps an increased stock price. For shareholders, it can mean increased dividends and some extra percentage points tacked on to their portfolios.

But what about those companies that had blowout quarters and now sit on piles of cash? Those focused on boosting shareholder value often turn toward a one-time event to spread the wealth around, known as a special dividend.

There are a few things about special dividends that make them... special.

First, they are usually issued in addition to the company's existing dividend.

Second, the nature of these one-time payments can catch investors, traders, and algorithms off guard, which can result in a burst of buying to push the stock price up once the stock goes ex-dividend . This creates an opportunity to both collect the dividend and squeeze a small gain out of the stock price at the same time.

While shorter-term trades like this are not for everyone, the forces behind special dividends spell out long-term value as well. It shows that a company is outperforming, cash-rich, and dedicated to paying back its stockholders.

I've sourced three upcoming special dividend opportunities that could pad your portfolio and increase its overall yield. Let's take a closer look at how to approach each one individually.

Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT )

Ex-dividend date: 9/3/2014

Starwood is the owner of hotel brands such as W Hotels, the Westin and Sheraton. This time last month, the firm announced only a slight earnings beat, but followed up with better news on the dividend front.

In addition to its regular quarterly payout of $0.35 per share, HOT will be rewarding investors with a special dividend of $0.65 for each of the next two quarters.

Considering the stock's heavy analyst support, bullish performance and lucrative dividends, I could see HOT being a clear winner through the holiday travel season and into the beginning of 2015. Buying in before September 3rd will earn you $1 in dividends and shares of a growing force in the international hospitality market.

King Digital Entertainment (NYSE: KING )

Ex-dividend date: 9/26/2014

The $0.47 special dividend from King Digital stands apart from the other two on this list for one big reason - KING stock took a 21% spill the day it was announced. The notorious maker of games such as Candy Crush Saga has hit a wall trying to monetize its other digital games, which does not bode well for future earnings. A slew of downgrades hit KING in the days following its earnings announcement, which brought the stock down a total of 31% so far this year.

In-and-out is the name of the game for this dividend. Buy in 1-to-3 days before the dividend hits and sell the day of. The company's projections don't support hanging on to this stock, and this trade should only be reserved for more experienced investors. If in doubt, stay away. The payout and negative pressure on the stock don't make this play for everyone.

The Scotts Miracle-Gro Company (NYSE: SMG )

Ex-dividend date: 8/29/2014

Shareholders of Scotts Miracle-Gro were hit with a triple dose of good news during the company's August earnings announcement. First, SMG bumped up its current dividend to $0.45. Then, the company approved $500 million worth of share buybacks. And most surprisingly, it announced a staggering one-time dividend of $2.00 a share.

While these corporate actions look great on paper, my worry is that they are simply intended to prop up the share price in stagnant times. SMG has seen very little revenue growth in the past few years, and big box retailers are experiencing lackluster sales in lawn and garden supplies. Despite this, the stock will likely see good buying pressure going into the special dividend and should keep that momentum through the share repurchase program.

Note the fast-approaching ex-dividend date. As icing on the cake, those who get in before 8/25/14 will collect SMG's quarterly dividend as well.

Risks to consider: Dividends cause a stock to open on its ex-dividend day down the same amount as the dividend. In a bull market, or with a strong stock, those down gaps can be filled quickly by buyers that see an opportunity to enter. However, this is not promised or implied. Note also that you must buy into these stocks before the ex-div date to collect the payout.

Action to take --> Special dividends can be a great source of extra income if approached correctly. KING remains a speculative play, while HOT seems primed for a good six-month yield grab. SMG's huge dividend payout will be great for existing shareholders but may be followed by little growth in share price for the foreseeable future.

Special dividends are great, but so are stocks with phenomenal traditional dividend yields . There's a little known loophole that lets you invest in this secret market -- and get yields over 12%. Hillary and Bill Clinton made $15.4 million by investing in a private stock market only open to the richest 6%... but this overlooked loophole allows average investors to get in on the action. To find out more, click here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.