11/9/2012 8:30 PM ET|
As tax hike nears, a dividend binge
Companies are making one-time special dividend payments to shareholders in anticipation of the demise of Bush-era tax cuts.
After one boom, megabust and sort-of-boom after they first went into effect, the expiration of George W. Bush-era tax cuts could goose the top individual dividend income-tax rates to more than 43% from the current 15%. This comes at a time when companies in the Standard & Poor's 500 Index ($INX) lug about $900 billion in cash, a 40% jump since 2008, that has made them net suppliers of cash to the rest of the economy.
So then what better time than these waning days of 2012 for corporate managers -- most often major shareholders themselves -- to issue special, one-time dividends? In the spirit of the holiday season, too. It stands to reason that the closer the economy gets to falling off the fiscal cliff, the more likely boards would be to sign off on such payouts. The recent precedent for this was the final quarter of 2010, when companies raced to pay out extra cash on concerns that President Barack Obama and the Republican Congress would not extend Bush-era tax cuts past the end of the year (that ball was effectively punted to the present).
A bit of history: Following Bush's midterm electoral mandate 10 years ago, the president spent a chunk of his political capital on a tax plan in 2003 that slashed rates on corporate dividends. The rationale was that more take-home from equity dividends would be both a boon to investors (and their disposable income) hit by a bear market, and a way to realign the interests of corporations and households in the wake of Enron, WorldCom and the unearthing of Wall Street rot. Market talking heads swore that the shareholder-friendly move would inspire a renaissance in investing for income.
In practice, investors displayed no particular rush to buy major dividend-payers. If anything, the 2008-09 meltdown induced a record number of blue chips to slash their payouts -- unthinkable last resorts for the bulge-bracketed likes of General Electric (GE), Pfizer (PFE) and Citigroup (C).
Today, however, corporate profits are at a record and the Federal Reserve-stoked "Great Yield Hunt" has sent tens of billions of dollars into junk bond and dividend-stock funds.
"Providing a special dividend to shareholders might be a good idea to consider in light of the election turnout," says Joseph Perry, a partner in charge of tax and business services with accounting firm Marcum, which last month joined with broker Twenty-First Securities to urge companies to pay out early and often. "If you assume that dividend tax rates will go up next year, it is prudent to help your long-term shareholders before Dec. 31." Perry says this can be accomplished either by paying out any cash dividends before year-end or by paying a stock dividend, which is generally not taxed until the stock is sold (thereby allowing investors to defer taxes until they sell their shares, and to take advantage of a long-term capital gains rate that even under the Obama plan would still be half the maximum dividend tax rate).
The calculus is a confusing one. Perry says that this time of year is normally when investors look to harvest losses, accelerate deductions, postpone income and invest in companies that don't pay dividends. "But for this year-end," he says, "they need to do the opposite."
The news tape increasingly has headlines from companies that get the need to shovel out excess cash while the shoveling's cheap.
The Buckle (BKE), a retailer based in Kearney, Neb., just announced a $4.50 special dividend in addition to its usual 20-cent quarterly dividend. By grouping the moves together, the company is effectively rewarding its investors with a 10% dividend. Last month, Trinity Bank (TYBT) of Fort Worth, Texas, said it would pay a special, one-time dividend to shareholders of $1 per share in addition to its second cash dividend of 20 cents. "We don't know what the dividend tax rate will be in 2013," said Trinity President Jeffrey Harp in the statement. "But we know it will be higher. We can provide some tangible return now to our shareholders in the most tax-advantageous manner possible."
And just ahead of the election, Commerce Bancshares (CBSH) of Kansas City, Mo., announced a special, one-time dividend of $1.50 a share in addition to its usual quarterly outlay of 23 cents. "Given the potential significant increases in tax rates on dividends beginning next year, and our strong levels of capital, it is an opportune time to provide this special dividend distribution to our shareholders before the end of the year," Chief Executive David Kemper said. Commerce also said that it would issue a 5% stock dividend in December.
According to Sandler O'Neill & Partners, the median percentage of community banks' earnings paid as dividends was 26.4% in the third quarter, which is down from 44% three years ago.
Depending on your worldview, that is a good or bad thing. Good: Such financial institutions are profitable enough to comfortably return money to shareholders. Bad: They can (and should) pay out much more. Writ large, this gets at a bigger tension: The desire for bigger dividends competes with chastened corporations' desire to hoard cash to avoid a repeat of their 2008-2009 brush with death.
More from Bloomberg Businessweek:
VIDEO ON MSN MONEY
To me, I don't think it matters WHO won the election. One way or another, WE-average (disappearing) middle class ALWAYS get "screwed" by "OUR" government. IT WAS NOT ALWAYS THIS WAY. There was a time when communities got together to REALLY help each other. The idea that a "pure" capitalist economy, or socialist economy, or a dictatorship, or a theocracy-its all nonsense. "OUR" government is no longer legitimate, because it is all self-interest. WE MUST BALANCE the idea of compassionate policies with FAIR, level playing field economic policies. That is nowhere to be found. WE should have a national health care plan, the debate on this has existed since social security began, the same arguments' are presented, perhaps with a new language, or lingo, but its that same as the newspapers articles I read from 1954!
As for taxing dividends, well, if that is only applied to people making more than $250,000.00 a year (350,000 for SMALL businesses) I can live with that. But as an older CITIZEN, disabled and retired, my only way to improve my sorry state of savings is to invest. BUT THIS YEAR, I STOPPED ALL DIVIDEND REINVESTMENTS FOR MANY REASONS. 1, I DO NOT CONTROL WHAT THE PURCHASE PRICE IS ON THE REINVESTMENT AND BROKERS PLAY AROUND WITH THIS, TO BE SURE. 2. I WILL PAY THE TAX THIS YEAR AT 2012 RATES, 3. HOPEFULLY, I WILL SELL MOST HOLDINGS WITHIN THE NEXT FEW YEARS-DEPENDING ON WHAT HAPPENS.
BUT WE ALSO HAVE TO TAKE RESPONSIBILITY FOR WHAT "OUR" GOVERNMENT IS DOING TO US. WE HAVE TO BEGIN USING PEACEFUL MEANS TO BRING LEGITIMACY BACK TO "OUR" GOVERNMENT. SOMETIMES, WE WILL HAVE TO LET GO OF OLD BELIEFS IN THE FACE OF NEW KNOWLEDGE (SUCH AS THE LAWS REGARDING MEDICAL MARIJUANA, AND I SAY THAT BECAUSE SEVERAL DRS. TOLD ME THEY WOULD PRESCRIBE IT TO ME IF THEY COULD.) BUT THERE IS EVEN MORE COMPELLING OLD BELIEFS THAT MUST BE EXAMINED AND RE-EXAMINED, AND WE NEED OUR REAL CONSTITUTION RESTORED. YOU KNOW, THE BILL OF RIGHTS AND THE FIRST TEN AMENDMENTS. OUR FOUNDING FATHERS GAVE US THE RESPONSIBILITY TO ENSURE THAT THE BILL OF RIGHTS SURVIVES, SO LETS USE THOSE RIGHTS (PEACEFUL ASSEMBLY TO ADDRESS GOVERNMENT WITH OUR GRIEVANCES.) BUT IT HAS TO BE UNIFIED, WE NEED TO STAND TOGETHER BECAUSE CONGRESS CAN'T AND HASN'T FOR A LONG TIME.
I AGREE WITH WHAT MANY ARE SAYING REGARDING THIS ISSUE, BUT I ALSO RECOGNIZE THAT MY SELF INTEREST IS NOT THE ABSOLUTE PRIORITY, BUT AT TIMES AN IMPEDIMENT TO DOING WHAT IS BEST FOR THE COUNTRY. WHAT MORE CAN I SAY (A LOT ACTUALLY, LIKE THAT ILLEGAL NON-"PATRIOT" ACT THAT WAS NEVER NEEDED AND SHOULD BE RESCINDED). BEST BE CAREFUL WHAT YOU SAY ON WEB SITES LIKE THIS. FOR ME IT IS TOO LATE, "THEY" MUST ENJOY WATCHING WHAT I AM DOING BECAUSE "THEY" ARE DOING A LOT OF IT. (NO KIDDING)
BOTTOM LINE, "OUR" GOVERNMENT IS NO LONGER "LEGITIMATE". SO WHY WAS CONGRESS, BASICALLY, RE-ELECTED? GUESS I AM JUST DISGUSTED WITH IT ALL, EVEN THE COMPLAINERS BECAUSE WHEN PUSH CAME TO SHOVE IN THIS ELECTION, AND IT WAS CLOSE, AMERICA SEEMS TO HAVE LOST IT'S DIGNITY-WITH US, NOT TO MENTION MOST OF THE FREE WORLD. ALL THOSE CIA TORTURERS, REMEMBER THEM? THEY WERE ALL PROMOTED WHILE NAVY SEALS WHO GOT TO BIN-LADEN WERE REPRIMANDED FOR ADVISING A GAME COMPANY! HOW'S THAT FAIR? WE HAVE FALLEN TO A NEW LOW IN THE ETHICS ARENA, WE ARE LOSING THE "GAME', WE HAVE BECOME NO BETTER THAN THE TERRORISTS THAT ARE SO INSANE.
ELECTRICIAN LOOKING FOR WORK IN GA,VA,NC,SC here is a cover letter below
146 Pine Crest Circle
Cleveland GA 30528
I’m writing to you all for the position that you have posted and hoping that the following will
be considered for my employment with your company below is a brief history of my skills
I’ll be waiting for your response when you all make that decision.
Trouble shoots low voltage control circuits and even relay control circuits
Read and understand any type of schematic or P&ID
Work with 277, 480, and 4,160 voltages
Installed DCS, PLCs, CPUs, VFDs, VSDs and using Instrumentation Devices to Control
Pre-programed functions to these controllers
Ran and manage technical support for my crew that supervised
Ran jobs has design as you go fast track jobs
Fire alarm Technician, Instrumentation Technician the only thing is calibrating the
Instrumentation devices you show me then I can do it
Work with NFPA, NEC, IEEE and ISA Standards
OSHA 30 Certificated
With my resume and my back-ground with Nuclear and regular power plants and DoD projects in CO I do have the skills to bring forth too your company where there can be improvements and high tech challenges for improvements to save you all on production and having a skilled tradesman like me to do the job one time and under budget.
William H Blackmon
The problem and the reason Dumbo was relected is most Americans in the 47 1/2% are just not very bright. They do not understand finance and how the system works.
You voted for this clown circus so you get what you got. Dumbo has been in over his head since day one. He most likely will ruin this country over the next 24 months. Sad that there is so many idiots that voted for this moron again.
The smart money has already adjusted for what is about to come. Get ready for 12 % unemployment $4.00 gas, and food prices up 12-15% before summer.
Obama care will "feed back" into the premiums we pay for insurance. So starting 1/1/13 we will have co-payments for the first time.
Watch the UN-employment rate begin to rise again.
Don't it bother anyone but me to see the younger people out there poping out kids just to get more money from the goverment.. My daughter friend is only 24 years old and has four kids get more in food stamps and goverment money than my wife and I both make working. This is sad and whats sader is she plans to have more kids. She voted for obama because she knows he is her money train.I'm tired of all the bullcrap. Obama depends on this so when her kids grow up more votes for his party. Time to stop the goverment give away.There is no future in it.Its going to break our country.
I wish every blue blood American union worker I mean every one of you all stand up and make a
G-iving into the Mexician and giving our money away
E-arn the respect of America give us jobs first, NOW
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.
Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'