On Thursday, Limited Brands (NYSE: LTD ), the parent of such high-profile
retail properties as Victoria's Secret and Bath & Body Works, announced a
vibrant 7% increase in same-store sales for November. The real news that day,
however, was the company's announcement that it would pay shareholders a
"special" $2 per share dividend. But just what is a special dividend, and
what does it mean for the markets? Simply defined, special dividends are
one-time payments that a company makes without any commitment to continue paying
dividends on a regular basis. They differ from "regular" dividends, which
are those paid usually on a quarterly basis. So, why would a company pay a
special dividend? The chief reason is that they want to retain investors and
make shareholders happy. A special dividend is a great way to create goodwill
among current and potential shareholders. It's also a way for a company to
generate positive headlines. For some firms, the goodwill and good PR can be
more valuable than just holding on to pathetically low-paying cash deposits, and
apparently Limited fits this bill. Another high-profile company that recently
announced a special dividend is casino operator Wynn Resorts (NASDAQ: WYNN ).
CEO Steve Wynn certainly knows how to generate goodwill and good PR, and the
announcement in early November that WYNN shareholders would receive a $5 per
share special dividend once again proved his acumen at the helm of the company.
Other high-profile names announcing special dividends this year include Internet
services firm VeriSign (NASDAQ: VRSN ), transportation and logistics firm Werner
Enterprises (NASDAQ: WERN ) and electronics direct marketer PC Connection
(NASDAQ: PCCC ). Sometimes, a company will offer a special dividend in the form
of ownership in a spinoff company. Such was the case with oil giant Sunoco
(NYSE: SUN ), which on Thursday declared a special stock dividend to its
shareholders for its stake in coke producer SunCoke Energy (NYSE: SXC ). In
Sunoco's case, the special dividend was part of a divestiture plan, which is
another reason why companies sometimes go the special route. The rub with
special dividends is that you never know when a company is going to decide to
pay them out. That makes buying a stock in anticipation of a special dividend
nearly impossible. However, if you do own a stock on the basis of sound
fundamentals and sound technicals, and that company decides to pay a special
dividend, then that's likely going to keep you smiling and that's the chief
reason why special dividends are a great tool for generating goodwill, and good
PR. Disclosure: At the time of publication, Jim Woods held no positions in any
of the stocks mentioned in this article.
No comments:
Post a Comment