Special Dividends Multiply

By Eric Fox | April 23, 2011 AAA

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.
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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.)

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