How to spot a potential special dividend stock

These 7 companies are prime candidates to announce payouts before year's end.

By TheStockAdvisors Sep 25, 2012 12:50PM
Financial Stock Chart copyright Kick Images, Photodisc, Getty ImagesBy Jim Fink, Investing Daily

During the last three months of 2010 -- the last time the Bush tax cuts were set to expire -- more than 150 companies announced special dividends. 

To guard against a rise in tax rates now, several companies are likely to announce special dividends during the last months of 2012 to take advantage of the current 15% rate. 

Why is this important? After all, don't stock prices fall by the amount of any dividend payout? Yes, that is true -- on the ex-dividend date.

But there is evidence that investors bid up the price of a stock significantly between the date a special dividend is announced and the ex-dividend date.

Bottom line: Special dividends can create trading opportunities! The key is to buy the stock before the special-dividend announcement and that is why the list of stock candidates below should be of interest to investors.

Since corporate executives don't always have the average shareholder's financial interest as a top priority (unfortunately), I believe a company is more likely to issue a special dividend if corporate insiders own a large chunk of company stock and would personally benefit from the dividend payout.

The company must also generate enough cash to pay a large dividend and not be burdened by a lot of debt. Consequently, I screened for stocks where:
  1. Insiders own at least 30% of shares outstanding
  2. Free cash flow is greater than 10% of the stock’s market cap
  3. Debt-to-capital ratio is less than 30%
The stock screen came up with seven stocks. These companies are prime candidates for special dividend announcements between now and the end of 2012:
  • NCI Inc. (NCIT), which is involved in cybersecurity software.
  • GameStop (GME), the video game retailer.
  • ManTech International (MANT), which is involved in electronic warfare.
  • Nasdaq OMX Group (NDAQ), the securities exchange operator.
  • Molina Healthcare (MOH), which provides Medicaid insurance plans.
  • Legg Mason (LM), a money management firm.
  • Cross Country Healthcare (CCRN), a healthcare staffing and outsourcing company.
More from TheStockAdvisors.com
0Comments

DATA PROVIDERS

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.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

120
120 rated 1
268
268 rated 2
439
439 rated 3
709
709 rated 4
641
641 rated 5
609
609 rated 6
640
640 rated 7
516
516 rated 8
272
272 rated 9
152
152 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION10
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.