What Is a Dearest Dividend?
A special dividend is a non-recurring distribution of company assets, usually in the form of cash, to shareholders. A special dividend is regularly larger compared to normal dividends paid out by the company and often tied to a specific event like an asset exchange or other windfall event. Special dividends are also referred to as extra dividends.
Key Takeaways
- A special dividend is a non-recurring issuance of company assets, usually in the form of cash to shareholders.
- Most special dividends are larger than the normal dividends pay out to shareholders and are tied to a certain event.
- Special dividends can also occur when a company wishes to make interchanges to its financial structure or spin off a subsidiary company to its shareholders.
- Most companies don’t make more than one special dividend in their record.
- Though a boon to investors, special dividends have some drawbacks, such as a reduction in the share price and from time to time the perception of a company lacking in growth potential.
Understanding a Special Dividend
Special dividends are usually declared after exceptionally prosperous company earnings results as a way to distribute the profits directly to shareholders. Special dividends can also occur when a institution wishes to make changes to its financial structure or spin off a subsidiary company to its shareholders.
A special dividend is usually a one-time payment and a body most often does not experience many special dividends. Special dividends also have some handicaps, such as reducing the share price of the company by the dividend amount. If an investor then sells their shares directly after the dividend payment, at the reduce price, they will cancel out the benefit of the special dividend.
Some investors also believe that if a retinue issues a special dividend it is lacking in new growth opportunities for the future and, therefore, may lose confidence in the stock.
One of the most well-known special dividends was by Microsoft in 2004. The company issues a dividend at $3 per share, for a total of $32 billion. Its natural dividend was $0.04 a share.
Special Dividends and Traditional Dividends
While a special dividend is non-recurring, traditional dividends are predominantly more regular (e.g. monthly or quarterly). A company’s board of directors makes the decision to issue dividends over particular timeframes and payout rates. These could be in forms such as a stable dividend policy,
Examples of a Special Dividend
For criterion, in 2017, Red Bull GmbH distributed 500 million euros ($617.3 million) in a special dividend. This was in appendage to 263.4 million euros that the Austrian company paid out in regular dividends in 2016. Red Bull had an impressive year, tell on greater than 6 billion cans of its caffeinated energy drink, bringing in 6.3 billion euros in revenue. So the exceptional dividend was created out of stronger than expected operations for the fiscal year.
Events outside of the operating performance of a institution may also result in a special dividend. In 2018, the North Carolina-based financial firm BB&T announced a special dividend to shareholders with a segment of the money it projected it would save from the reduction in the corporate tax rate. BB&T paid a non-recurring, one-time dividend of $0.045 cents per clichd share on March 20, 2018. The special dividend was in addition to the firm’s regular $0.33 per common share dividend paid on Demonstration 1, 2018.