what is Special Dividend

**Special Dividends: A Strategic Move for Shareholders** 1. **Definition and Significance**: - A special dividend is a one-time, non-recurring dividend paid by a company to its shareholders, often in the form of cash or assets. It is typically larger than regular dividends and is issued following significant corporate events or exceptional earnings. - Special dividends do not alter the regular dividend cycle and are used to distribute one-time profits or to adjust the company's financial structure. 2. **Examples and Context**: - Notable examples include Microsoft's $3 per share dividend in 2004 to reduce its cash balance, and Costco's $10 per share special dividend in 2020, amounting to $4.4 billion. - Companies may pay special dividends after strong earnings, spin-offs, or to reward shareholders following a windfall profit. 3. **Impact on Valuation and Shareholders**: - Special dividends can significantly affect a company's valuation if the amount is large, as they represent a direct depletion of assets. - For shareholders, special dividends offer a lump sum benefit outside the regular dividend cycle, which can be attractive for those seeking additional income. 4. **Strategic Rationale**: - Companies may use special dividends to signal strong financial health or to distribute profits generated from one-time events. - Special dividends can also be used to adjust the company's capital structure or to reward shareholders without altering the regular dividend rate. 5. **Considerations and Limitations**: - Paying a special dividend can reduce the company's cash reserves, potentially impacting future investment opportunities. - The ex-dividend date for special dividends is set according to the dividend's size, with dividends under 25% expected to follow regular rules. In conclusion, special dividends are a strategic tool for companies to return excess profits to shareholders or to adjust their financials. While they can be beneficial for shareholders seeking additional income, companies must weigh the impact on cash reserves and future investment opportunities.