I read an interesting observation today about Buckle (NYSE: BKE), one of my favorite public companies. Essentially, the writer (Stephen Rosenman, Seeking Alpha) makes the case that the Nebraska retailer will make another special dividend in 2010, this one bigger than the $1.80 it doled out to shareholders in 2009. With the 15% tax on dividends set to end this year and increase to a maximum 39.6%, companies with large insider positions will elect to save shareholders some tax ahead of the change. Whether this happens is anybody's guess, but I do know that if the higher tax is reinstated, share repurchases will become even bigger than they already are. That's bad news for investors, because in my experience, most companies do a terrible job of buying back stock.

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Possible Candidates
To narrow the field, I've restricted my screen to S&P 500 companies with insider ownership of more than 25% and cash from operations greater than $1 billion. Only eight fit the bill, and they're highlighted in the table below. From this select group I'll discuss which companies make better candidates, focusing on their past dividend and share repurchasing activities.

S&P 500 - 2010 Special Dividend Candidates



Company


Dividends


Share Repurchases


Wal-Mart (NYSE: WMT)


$3.7B


$3.5B


Carnival (NYSE: CCL)


$314M


($8M)


Franklin Resources (NYSE: BEN)


$143M


$1.3B


Reynolds American (NYSE: RAI)


$991M


$5M


Gap (NYSE: GPS)


$243M


$630M


Coca-Cola Enterprises (NYSE: CCE)


$147M


$0


Pepsi Bottling Group (NYSE: PPG)


$430M


$47M


Lennar (NYSE: LEN)


$27M


($221M)


No Special Dividend
Right off the bat, we can eliminate Pepsi Bottling Group as a candidate as it will become a wholly owned subsidiary of Pepsi (NYSE: PEP) at the end of the month. This leaves us with seven. Scratch homebuilder Lennar from the list as well. It reduced its annual dividend to 16 cents in 2009 from 52 cents the year before. In 2010, it will continue with the lower payment. Unless new homes suddenly start selling, which is doubtful, there'll be no money in the kitty for shareholders of any kind.

Although Gap has lots of free cash flow just like Buckle, I see little in its dividend history that leads me to believe it will change course. I suspect it will simply increase its share repurchases come 2011.

Coca-Cola Enterprises announced February 10 that it was planning to purchase up to $600 million of its stock in 2010. Unless management's tune changes, this likely precludes the company from any special dividend bonanza.

It Could Happen
Carnival suspended its dividend in 2009, saving the company $1.3 billion in the process. In March, it will resume paying a dividend. Management has said that after 2010, capital expenditures will slow, providing significant free cash flow. As we move through this year, if Carnival is meeting expectations, you could easily see an early Christmas gift for shareholders.

Franklin Resources paid a $2 a share special dividend in 2005, so it's definitely a possibility.

While Reynolds American has the free cash flow to make a significant special dividend, I doubt it'll happen. It doesn't seem to be in the company's DNA, but you never know. As for Wal-Mart, it doesn't seem to have a problem adding value for shareholders through stock buybacks ($7.7 billion in 2008 alone), but special dividends are another matter altogether. I can't say the company won't, but it's doubtful. (Learn more about the importance of dividends in Why Dividends Matter.)

Bottom Line
If I only had one choice among these eight, I'd have to go with Franklin Resources. It has the cash to make a move and a history that demonstrates it's not afraid to reward shareholders.

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Tickers in this Article: BKE, WMT, CCL, BEN, RAI, GPS, CCE, PPG, LEN, PEP

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