Many companies are returning large amounts of cash to shareholders through the payment of special dividends. These payments reflect the large and rising hoard of cash sitting on corporate balance sheets.
TUTORIAL: Stock Basics

Facts
A January 2011 study from Standard and Poor's indicated that the top 50 global companies held $1.08 trillion in cash on its balance sheets, with the 17 U.S. based companies on that list with $458.2 billion. This amount has been rising over the last few years as companies cut back on spending to buffer against the recession and financial crisis. (For more, see 4 Companies with High Free Cash Flow Yield.)

Motivation
The motivation for these payouts can vary. Common motives include a lack of business opportunities and pressure from institutions and other large shareholders to return cash. Also, a large cash hoard can sometimes attract unwelcome suitors.

Commodities Pay
Freeport-McMoRan Copper & Gold
(NYSE:FCX) declared a special dividend of 50 cents per share to be paid in June 2011. The special dividend will total $474 million, and will be paid in addition to the company's normal quarterly dividend of 25 cents per share.

Freeport-McMoRan Copper & Gold just reported a blow out quarter with net income of $1.5 billion. The company has total debt of approximated $3.7 billion and cash holdings of $4.1 billion.

Freeport-McMoRan Copper & Gold is riding the bull markets in gold, copper and other commodities, and certainly has ample financial capacity to afford this payout.

Paper and Pulp
Boise
(NYSE:BZ) declared a special dividend of 40 cents per share, with the company citing its strategy of opportunistically returning capital to shareholders. The company reported $178 million in cash, cash equivalents and short term investments, compared to total debt of about $780 million as of December 2010.

Boise operates in the pulp and paper industry, an intensely cyclical business that has seen its share of bankruptcies and restructurings over the last decade. One wonders whether the company will one day regret paying out cash rather than saving it for a future down cycle in the industry.

The Energy Sector
Diamond Offshore Drilling
(NYSE:DO) recently declared a special dividend of 75 cents per share, or approximately $104 million. This is the company's second in 2011, and it has paid out so many special dividends over the last four years that the word "special" should probably be dropped from the press release.

This largess began in 2006 with a special dividend of $1.50 per share, followed by two special dividends totaling $5.25 per share in 2007. Another four special dividends totaling $5.625 per share were paid out in 2008.

In 2010, Diamond Offshore Drilling announced special dividends of 75 cents per share in July and October, along with $1.875 per share in February and $1.375 per share in April. In 2009, the company also paid four special dividends of $1.875 per share. All this generosity is in addition to the regular quarterly dividend of 12.5 cents per share.

Diamond Offshore Drilling also operates in a cyclical business, and might do well to hoard some cash. However, the length of this current industry business cycle and the overall rabid belief in the bull case for energy has obscured any memory of just how horrific conditions can get in a trough.

Exchanges
NYSE Euronext (NYSE:NYX) is considering paying a special dividend to shareholders in connection with its merger with Deutsche Boerse AG. The company is attempting to get shareholder approval for the merger despite a competing and higher offer from Nasdaq OMX Group (Nasdaq:NDAQ) and the Intercontinental Exchange (NYSE:ICE).

Bottom Line
Public companies have bundles of cash on balance sheets and are declaring special dividends as they return some of this cash to shareholders. (For more, see Special Dividends Trump Share Repurchases Every Time.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  4. Stock Analysis

    The Top 5 Small Cap Gold Stocks for 2016 (KGC, SBGL)

    Learn about the factors that led to gold's underperformance, factors that may lead a gold rally and five micro-cap gold stocks to consider.
  5. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  6. Stock Analysis

    The Top 5 Micro-Cap Gold Stocks for 2016 (PGLC)

    Discover five micro-cap gold miners that are well-positioned for a positive year in 2016, even if gold prices remain under pressure.
  7. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  10. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center