Recession

Special Dividends Can Double Your Dividend Income

The Wall Street Journal called it “the largest corporate cash disbursement in history.”

Q4 hedge fund letters, conference, scoops etc

Dividend Income At No Risk

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It was 2004, and Microsoft was one of the biggest companies on the planet.

Besides, they had a great year. So great that the company decided it would return $75 billion to shareholders.

Microsoft boosted its dividend by $3 billion to $0.32 per share. That was a dividend yield of 1.2%.

But the bigger news was the one-time dividend payment of $3.00 per share. This “special dividend” raised the dividend yield to 11%!

It was nearly 10 times the company’s regular dividend yield.

Microsoft isn’t the only company that makes cash payouts like this.

There’s a little-known breed of stocks that double, triple, or quadruple their dividend yield. They do it by paying secret dividends nearly every year.

Secret dividends don’t show up in stock quotes.

But if you know where to look, it can be very profitable for you.

Regular Dividend vs. Special Dividend

A dividend is a company’s cash payment to shareholders. This way the company distributes part of its earnings to investors.

Many companies pay a dividend every quarter or once a year. Among them are big blue-chip stocks like Coca-Cola Co. (KO).

See, Coca-Cola has paid—and raised—its dividend every year for 55 years. For example, if you had bought Coca-Cola shares on January 1, 2018, you would have been paid $1.56 per share last year.

The company announces well in advance when and how much it is going to pay. And investors expect to get paid these dividends.

That is a regular dividend. A “special dividend” is different.

Special Dividends Can Double Your Dividend Income

Like Microsoft back in 2004, some companies pay special dividends.

Unlike a regular quarterly or annual dividend, a special dividend is a one-time payment.

It’s like getting a dessert “on the house” at a restaurant. You didn’t have to do anything but show loyalty to the restaurant to get this extra “bonus.”

They are in effect a reward for a company’s shareholders.

Most people think special dividends are unpredictable. This is only true if you don’t know where to look.

But if you do know where to find these special dividends, they can seriously increase your dividend income.

Regular Dividends Only Tell Part of the Story

You’ve probably never heard of PACCAR (PCAR).

The company makes trucks and parts under the brands Kenworth, Peterbilt, and DAF. The business may sound boring, but its dividend policy is anything but.

The company’s regular dividend is a low 1.9%, which they have paid for 70 years. That’s less than the average S&P 500 dividend yield of 2.0%.

But PACCAR’s regular dividend is only a small part of its dividend payout.

The company has a well-kept secret. It has paid a special dividend for eight years in a row.

PACCAR paid $1.09 in regular dividends last year, which comes to a yield of 1.9%. But last month, the company paid an additional $2.00 special dividend to shareholders.

That pushed the total dividend yield in 2018 to 5.0%.

That’s more than double the company’s regular dividend yield. It handily beats the average S&P 500 dividend yield.

But PACCAR (PCAR) is far from the only company to do this.

Digging Deep to Find Massive Dividends

As the editor of Yield Shark, I’ve researched income investing for years.

Over the years, I’ve found a method to spot companies that pay special dividends.

As I mentioned, special dividends don’t show up in most online financial data.

I use Morningstar for much of my stock research.

This is what they have listed for PACCAR’s dividend history:

Dividend Income

Source: Morningstar

For 2018, the record shows the company paid $1.09 in regular dividends.

But there’s no mention of the $2.00 special dividend.

You have to know where to look when it comes to special dividends.

One of the best sources is MarketBeat. The website lists special dividends coming up for each month.

But you have to remember: just because the company pays a special dividend, doesn’t mean the underlying business is strong.

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By Robert Ross


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