Special Dividend Mania ?

[CONeal]

Can’t help but wonder if over the next few months companies in the US start issuing special dividends to take advantage of the expiring Bush Tax Cuts.  While it is uncertain how and in what way the Bush Tax cuts will be extended or altogether allowed to expire, one thing is abundantly clear.  Anyone in the higher tax brackets are going to be hit with higher taxes.  With the tax on dividends increasing up to over 39% I think companies will liquidate a lot of the excess cash in the form of a one time dividend.  In the future, instead of increasing dividends companies will either increase the amount of share buybacks or focus more on expansion. 

 

Agree or disagree?

 

[watsa_is_a_randian_hero]

its a twofer.  Expiring tax rates and low interest rates.

 

We just did work for one company that issued a 2.5 billion leveraged dividend - all borrowed.  It was equivalent to 1/3 of the company's market value.

[watsa_is_a_randian_hero]

its a twofer.  Expiring tax rates and low interest rates.

 

We just did work for one company that issued a 2.5 billion leveraged dividend - all borrowed.  It was equivalent to 1/3 of the company's market value.

 

WSJ tonight is reporting MSFT is considering taking debt also now to pay a special dividend

[Myth465]

why would MSFT do it. Do to rates being low? They have so much cash, but I can understand if you can borrow at less than 4%

[CONeal]

MSFT has alot of cash but most of it is overseas and would have to pay taxes bringing the money back to the US. 

 

Since everyone wants to buy debt right now it would be cheaper for them to issue debt with their current rating.

 

This is the logic used for issuing the debt according to the

 

http://www.bloomberg.com/news/2010-09-13/microsoft-is-said-to-plan-debt-sale-to-pay-for-dividends-buy-back-shares.html

[Myth465]

MSFT has alot of cash but most of it is overseas and would have to pay taxes bringing the money back to the US. 

 

Since everyone wants to buy debt right now it would be cheaper for them to issue debt with their current rating.

 

This is the logic used for issuing the debt according to the

 

http://www.bloomberg.com/news/2010-09-13/microsoft-is-said-to-plan-debt-sale-to-pay-for-dividends-buy-back-shares.html

 

Thanks very interesting. It appears that Western Digital is in the same spot. I wonder if the debt could be paid off from abroad without paying taxes. I assume alot of that cash is in dollars, but held in foreign accounts.

[shalab]

WSJ tonight is reporting MSFT is considering taking debt also now to pay a special dividend

 

I would be surprised if MSFT issued a special dividend with debt - Ballmer has said that paying out a one time $3/share dividend sometime back didnt help the shareholders. The beneficiaries of this exercise would be Gates (~7% ownership) and Ballmer (~5%) ownership of MSFT.

 

However, it totally makes sense to borrow money to buy back stock - if you believe Microsoft is undervalued. This increases the EPS. It also allows increases in dividends to existing shareholders without increasing the money earmarked for dividends. This is because the number of shares outstanding would decrease.

[Myth465]

Wouldnt the stock jump as they get closer? The stock would loss some of its cheapness.

[shalab]

Wouldnt the stock jump as they get closer? The stock would loss some of its cheapness

 

There is plenty of liquidity with Microsoft - with average volume at around 60 million/day, dont see any problem in buying back a few billion dollar worth of stock without any movement.

 

 

[bookie71]

First National Bank of Alaska (FNBK) just declared a special October dividend of 100 in addition to it's regular 4th quarter dividend of 25.

[MVP444300]

http://money.cnn.com/2010/09/14/technology/cisco_dividend/index.htm

 

Cisco is declaring a dividend for the first time in its history.  Frankly,  I think they need to return most of that $40 billion in cash to shareholders they are earning less than 2% on. 

 

 

[bookie71]

oops that's FBAK.OB

[bookie71]

If you google "special dividends 2010, It seems a lot of companies are doing the special dividends.