As the fiscal cliff looms large, many boards are approving payouts to reward shareholders before the anticipated tax hikes at the beginning of next year.
While Congress may potentially limit or delay the hit from the fiscal cliff’s $600 bn automated tax rise, investors remain nervous as higher taxes on dividend income appears inevitable due to the dire state of the US economy, and the re-election of President Barack Obama who made taxing the rich a pillar of his campaign
The Bush-era 15 percent top tax rate on dividends is scheduled to end in January and, if Congress takes no action before December 31 in striking a deal on tax cuts and spending programs that are due to expire, dividends would be taxed at the same levels as wages and salaries. This will see the top tax rate more than double, from 15 percent to 43.4 percent.
Dillard’s, Drew Industries, Ethan Allen Interiors, Franklin Resources, HCA Holdings, Knight Transportation, LyondellBasell Industries and Leggett & Platt have all recently announced special payouts.
More than 100 companies have declared special dividends in the final quarter, compared to the average of just 31, according to data provider Markit, reports the Financial Times. The data firm believes up to 20 more companies will also reveal special payments by the turn of the year.
These tax hikes will affect investors, not least those founders that still hold large stakes in their companies. Echoing this rhetoric, casino operator Las Vegas Sands – where roughly half the stock is owned by chief executive Sheldon Adelson and his wife – announced Monday it will pay $2.75 a share, a total of $2.26 bn, next month.
Another casino operator, Wynn Resorts, made a $750 mn payout in the past two weeks. Wynn’s chief executive, Steve Wynn, informed analysts last week that his company’s special dividend was motivated by the confusion reigning in Washington, and the fear that shareholders could see the benefits of future dividends ‘whittled away by confiscatory tax policies’.
Another pattern is also developing: rather than adding a dividend payment some companies are simply shifting their calendars to move payments forward into this year.
For instance, Wal-Mart, another largely family-owned company, rescheduled its dividend payout from January 2 to December 27 to avoid the impending tax increase.
