What is a 'Special Dividend'

A special dividend is a non-recurring distribution of company assets, usually in the form of cash, to shareholders. A special dividend is larger compared to normal dividends paid out by the company.

Special dividends are also referred to as "extras dividends."

BREAKING DOWN 'Special Dividend'

Generally, special dividends are declared after exceptionally strong company earnings results as a way to distribute the profits directly to shareholders. Special dividends can also occur when a company wishes to make changes to its financial structure or spin off a subsidiary company to its shareholders.

For example, in 2017 Red Bull GmbH distributed 500 million euro ($617.3 million) in a special dividend. This was in addition to 263.4 million euros that the Austrian company paid out regular dividends in 2016. Red Bull had an impressive year, selling greater than 6 billion cans of its caffeinated energy drink, bringing in 6.3 billion euros in revenue.

For another example, in 2018, the North Carolina-based financial firm BB&T announced it would pay a special dividend to shareholders with a portion of the money it projected it would save from the reduction in the corporate tax rate. BB&T is set to pay a non-recurring, one-time dividend of 4.5 centers per common share. The date of record for the special dividend is March 6, and the payment date will be March 20. The special dividend is in addition to the firm’s regular 33 centers per common share dividend.

Special Dividend and Traditional Dividend

While a special dividend is non-recurring, traditional dividends are usually more regular (e.g. monthly or quarterly). A company’s board of directors makes the decision to issue dividends over specific timeframes and payout rates. These could be in forms such as a stable dividend policy, target payout ratio, constant payout ratio, or residual dividend model.

Start-ups and other high-growth companies offer dividends more rarely than established companies, such as those in basic materials, oil and gas, banks and financial, healthcare and pharmaceuticals, and utilities industries. Software companies for example often report losses in their early years and must return any profits back into their business to sustain their expansion.

In contrast, larger and older companies with more predictable profits tend to issue regular dividends in order to maximize shareholder wealth. Companies structured as master limited partnerships (MLPs) and real estate investment trusts (REITs) are considered top dividend payers.

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