Special Dividends for a Special Fiscal Cliff

The fiscal cliff is a special combination of tax cuts expiring at the end of the year, along side of a reduction in government spending. It was brought on by Washington’s inability to compromise during last year’s debt ceiling standoff. In an effort to dampen the impact on an increase in taxes, several companies are paying out special dividends ahead of any resolution from Congress.

Earlier this year, Goldman Sachs (NYSE:GS) predicted that corporations would issue a record amount of special one-time dividends, because the current 15 percent dividend tax rate is scheduled to expire at the end of this year, which could result in dividends being taxed as high as 43.4 percent for some investors. “A well capitalized corporate America, flush with cash, and a potential shift, regardless of party, in the tax rate higher in 2013 augur a wave of special dividend announcements,” explained Robert Boroujerdi of Goldman Sachs, in a research note. “Combining the year-to-date special dividend announcements with the traditional 4Q trend, we expect 2012 to set a record.”

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With the fiscal cliff just weeks away and Congress on vacation, companies are indeed making adjustments. Special dividends are being paid out at four times the pace of last year. According to Bloomberg, nearly 60 companies in the Russell 3000 stock index declared a one-time cash payment to shareholders between the end of September to mid-November. Over a dozen firms said they took action because of the scheduled dividend hikes.

Goldman Sachs named 15 specific companies in September that may issue a special dividend. Wynn Resorts (NASDAQ:WYNN) and Franklin Resources (NYSE:BEN) are two names from the list that have lived up to expectations. Last month, Wynn declared a special cash dividend of $8 a share, which included the usual 50 cents a share quarterly dividend. Meanwhile, Franklin Resources announced on November 16 that it will pay a special dividend of $3 per share prior to the end of the year. Federate Investors (NYSE:FII), one of Franklin’s peers and another name on Goldman’s list, also recently reported a special dividend.