Special Dividends
A special dividend is exactly what it sounds like. It’s a dividend that’s, well, special. Any questions?
A special dividend is usually a one-time payment, often much more than the regular dividend.
Look at the dividend chart (Figure 7.3) and data (Figure 7.4) on American Eagle Outfitters (NYSE: AEO). You can see that in 2009 through March 2010, American Eagle paid shareholders $0.10 per share on a quarterly basis. It raised the dividend to $0.11 in June 2010.
Then in December the dividend spiked to $0.61 but immediately went back down to $0.11.
On December 2, American Eagle declared a special $0.50 per share dividend on top of its regular $0.11 quarterly dividend. So shareholders received $0.61 per share that quarter.
A company may declare a special dividend for a number of reasons. One of the most common is because shareholders demand it. We saw that in 2004, when Microsoft, sitting on billions of dollars in cash, paid shareholders a special dividend of $3 per share. The payout barely put a dent in the company’s cash stash but somewhat appeased investors who were unhappy that the company was hoarding ...
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