With the fiscal cliff just a few weeks away and Congress still at odds, a record number of US companies have announced special dividends in recent months in order to escape potentially higher taxes on equity income payments.
On January 1, with the expiration of the so-called Bush-era taxes, the tax rate on dividend income could jump to a top rate of 43.4 percent, as opposed to a current rate of 15 percent.
On Wednesday, Costco announced it will use proceeds from a $3.5 billion debt offering to finance a special dividend of almost $3 billion next month, or $7 per share. This is on top of its regular quarterly dividend of 27.5 cents per share, making it the largest payout so far from any US company.
Last week, Costco’s biggest rival, Wal-Mart, moved its planned dividend to late December from early January to help shareholders avoid any increase in the tax rate.
The New York Times explained the rush for dividend payouts:
Other companies who have announced a special dividend include Las Vegas Sands and Walt Disney.
As of Wednesday morning, 173 companies have announced special payouts in November, compared to only 72 a year ago, said Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.
Silverblatt added that 404 companies within the S&P 500 are now paying dividends, the highest number since November 1999, averaging 2.29 percent, which is much higher than the 1.65 percent return on 10-year Treasury bonds.
Analysts are expecting cash rich companies such as Microsoft and Apple, which has more than $120 billion in cash reserves and already pays out a regular dividend, to make similar announcements soon.