Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances.
Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities.
Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. Amy’s work can be found regularly on the Financial Post and MoneyWise Canada.
When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog Finley, and travel.
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When looking at dividend stocks, investors likely go straight towards the dividend yield. After that, they look at how much that dividend yield really comes to. And there is what you can earn each year from buying shares of this dividend stock, right?
Wrong — at least, in some cases.
There are dividend stocks that also offer special dividends. What are special dividends? Let’s explain and look at some stocks you should consider today.
What are special dividends?
At their core, special dividends are non-recurring distribution of company assets. These are usually done through cash payments to shareholders. But unlike a regular dividend, special dividends are usually larger than normal dividends paid.
These “special” dividends are special because the payments are usually tied to some kind of event. This might be an asset sale, corporate restructuring, a spinoff, or other generator of income. The thing is, most companies don’t offer more than one special dividend in their history.
Now, this is because a special dividend has to come from a very special event. A spinoff or restructuring would have to bring in so much cash that the company pretty much has to give it out to shareholders. Others believe that cash could be used for better purposes, such as expansion or investment, or even just a cash cushion. Even so, there are some Canadian stocks that investors may want to consider for a special dividend.
On offer
First, let’s look at a dividend stock offering up a special dividend for 2024. RetailerCostco Wholesale (NASDAQ:COST) reported that it would be providing a US$15 special dividend for shareholders of record as of Dec. 28, 2023. Of course, that date has come and gone, but I wouldn’t discount the discount stock just yet.
Costco stock has done five special dividends over its history. What’s more, that’s been over the last 12 years alone! These were in 2012, 2015, 2017, and 2020, paying out US$7, US$5, US$7, and US$10, respectively. However, the almost double dividend comes from the company’s cash richness. The bottom line is that it’s just an amazingly well-run company and stock.
With US$7 billion in debt and US$18 billion in cash, the company is a strong dividend stock for short- and long-term investments. It’s offered double-digit earnings growth, up 17% year over year in the first quarter. It now offers a dividend yield of 0.59% for investors, coming in at US$4.08 per share annually.
A potential lead
For those looking for a dividend stock that might have the potential for a special dividend in the future, keep your eye on Granite REIT (TSX:GRT.UN). This industrial real estate investment trust (REIT) has surprised investors with a special dividend in the past. This occurred when disposing of large assets, which the company has been doing as of late.
If there are even more asset sales in 2024, then it could be likely that Granite stock will announce a special dividend. The last one on record was announced Dec. 17, 2018. Shareholders of record on Dec. 31, 2018, received a special dividend of $1.20 on Jan. 15, 2019. So, this could certainly happen again.
That’s especially true as the company continues to find ways of creating capital and scoring through new growth opportunities from its current operations. And given the ongoing demand for industrial properties, growth in dividends and earnings certainly looks likely. For now, you can still grab a dividend yield of 4.47% as of writing from the dividend stock.
Let's take a look at a semi-recent special dividend. In November 2020, Costco (COST -0.55%) was paying a regular dividend of $0.70 per quarter. However, it announced that it would pay a special dividend in December of $10 per share.
Let's take a look at a semi-recent special dividend. In November 2020, Costco (COST -0.55%) was paying a regular dividend of $0.70 per quarter. However, it announced that it would pay a special dividend in December of $10 per share.
A special dividend is a non-recurring distribution of company assets, usually in the form of cash, to shareholders. Most special dividends are larger than the normal dividends paid to shareholders and are tied to a certain event.
If the dividend is 25% or more of the stock value, special rules apply to the determination of the ex-dividend date. In these cases, the ex-dividend date will be deferred until one business day after the dividend is paid.
The Company also announced that the Board of Directors has declared a special cash dividend on Costco common stock of $15 per share, payable January 12, 2024, to shareholders of record as of the close of business on December 28, 2023.
A special dividend can be seen by investors as the company finding no better use for its cash reserves. In other words, investors may see the company facing a lack of reinvestment opportunities. This may have a negative impact on the company's stock price as investors may believe its growth potential is decreasing.
This adjustment is much more obvious when a company pays a "special dividend" (also known as a one-time dividend). When a company pays a special dividend to its shareholders, the stock price is immediately reduced.
Previous special dividends were paid in 2012, 2015, 2017, and 2020 in the amounts of $7, $5, $7, and $10, respectively. This makes the company's 2024 special dividend of $15 its largest, by far. To fund this dividend, Costco will pay an aggregate amount of $6.7 billion to shareholders.
At the most basic level, you only need to own a stock by the ex-dividend date (or deadline) in order to get the dividend. And you can sell the stock a day or two after that, once everything settles. So in theory, you only need to own the stock for a couple of days to get the dividend.
The Coca-Cola Company's ( KO ) dividend yield is 3.22%, which means that for every $100 invested in the company's stock, investors would receive $3.22 in dividends per year. The Coca-Cola Company's payout ratio is 74.22% which means that 74.22% of the company's earnings are paid out as dividends.
Founded in 1979, the company has raised its dividend every year for the past 18 years. Globe Life reported Q4 and full year 2023 earnings on February 7th, 2024. For the quarter, earnings-per-share were $2.88, above the $2.46 the company reported in the same quarter of 2022.
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
A special dividend is a one-time payment conducted by a company by distributing its assets to its shareholders. They are commonly offered only when a company has reported a high-profit margin or intends to modify its financial structure to its stakeholders.
This broader mix of stocks offers higher payouts and greater diversification than what you'll get with the Invesco QQQ Trust. And if you've got a large portfolio totaling more than $1.1 million, your dividend income could come in around $50,000 per year.
A company will usually pay out a special dividend after strong earnings as a way to reward long-term investors. However, there are times when special dividends are paid out when a company is trying to make changes to its financial structure.
Unlike most regular dividends, which are taxed as qualified dividends (and thus as long-term capital gains), special dividends can be made up of a mixture of capital gains, ordinary income, and returns of capital.
The dividend payout is aimed at enhancing the firm's payout ratio and distributing a portion of its substantial automotive cash balance, which stands at $28.7 billion, to shareholders, David Whiston, analyst at Morningstar said in a note.
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