When Should A Company Pay A Special Dividend?

Usually, you only hear discussions of special dividends when a country’s tax rates are about to increase and a corporation wants to throw some cash at shareholders before the higher rates take effect.

But there are other situations when special dividends are appropriate, too. Namely, when you have cash on hand that cannot be put to a productive use through repurchases, growth initiatives, or balance sheet improvements.

You don’t see special dividends discussed too often because those three circumstances are rarely present all at once, and there is no long-term shareholder constituency drawn to special dividends and management teams often get bonuses tied to stock price and earnings growth. So when a special dividend is an appropriate use of corporate funds,  there is no stakeholder in the business that would naturally clamor for a one-time payment.

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