Any guesses how corporate America is preparing for the impact of the resolution of the negotiations currently in the works on resolving the horribly- (and inaccurately-) named “fiscal cliff?” Well, if you guessed that there was a fire sale on giving money to shareholders before there are any changes to the current tax code, you’d be spot on. According to Markit, who tracks this sort of thing, as reported in yesterday’s Financial Times, there has been a surge in special dividends from corporate America to shareholders this quarter. As the FT succinctly puts it,
Since the start of the fourth quarter, a record 103 companies have announced they will pay special dividends before the end of the year, according to Markit. The data firm is forecasting that 123 companies will announce special fourth-quarter dividends, compared to the previous average of just 31.
Well, who knew? And why is this happening?
The current tax rate of 15 per cent on dividends, legislated by the Bush tax cuts in 2003, could spike to a top rate of more than 40 per cent next year unless President Barack Obama and Congress can avoid the fiscal cliff , which would trigger automatic tax rises and spending cuts. Mr Obama made raising taxes on the wealthy a central plank of his re-election campaign.
The dividends have been promised by companies where management insiders hold a high proportion of the shares.
And, of course, it gets better:
Some larger companies, such as Walmart, have also moved up their regular scheduled dividend payout from early January to late December. Almost half of Wal-Mart’s shares are held by the Walton family.
Huh. No one could have possibly predicted etc etc.