What is a Special Dividend?
A special dividend is a one-time payment made by a company to its shareholders, in addition to the regular dividend payouts. This type of dividend is often distributed when a company has accumulated excess cash and wants to share it with its investors. Special dividends differ from regular dividends both in terms of their frequency and the amount paid.
Characteristics of Special Dividends
- One-time Payment: Unlike regular dividends, special dividends are not recurring and are usually declared in exceptional financial circumstances.
- Higher Amounts: They can be significantly larger than regular dividends, reflecting the company's current financial health.
- Investor Perception: Issuing a special dividend can be viewed positively, often indicating that the company is performing well and has surplus capital.
When Do Companies Issue Special Dividends?
Companies may choose to issue special dividends during events like:
- Profitable quarters or years.
- Sell-off of a business segment leading to a cash influx.
- Excess cash that the management feels should be returned to shareholders.
Conclusion
Investors in dividend growth stocks should pay attention to special dividends as they can reflect a company’s financial strength and management’s approach to capital allocation. However, it’s essential to understand that special dividends are not guaranteed and should not be relied upon for regular income.