Earlier this morning, Costco surprised its shareholders by announcing a special cash dividend of $7.00 per share. And the share price is surging.
So, why are companies suddenly dumping cash on their shareholders?
Well, the big catalyst seems to be the prospect of higher dividend tax rates as a consequence of the fiscal cliff. If nothing is done by the end of the year, Bush-era tax cuts will expire causing the dividend income tax to surge from 15 percent to 43.4 percent.
“The 2001/2003 tax cuts were originally set to expire at the end of 2010, though, after months of political negotiations, the rates were extended in the final weeks of that year,” wrote Robert Boroujerdi of Goldman Sachs. “Indeed, 2010 saw the highest number of one-time dividend announcements, more than double the run-rate of 2000-2011 period.”
Boroujerdi provided a list of companies he thought would surprise investors before the year ended. Indeed, some have already announced a dividend. NOTE: The ratios in the table below are based on September 21, 2012 stock prices:Twitter