Thanks to Fiscal Cliff, Christmas Comes Early for Dividend Investors

Dividends
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Among other things, the fiscal cliff promises to raise taxes on dividend income. And that’s prompting some companies to pay their dividends before the cliff hits.

Several major companies, most notably Wal-Mart (NYSE: WMT), are issuing earlier-than-usual dividends to avoid the tax bump that will be levied should Obama’s Budget Control Act – a.k.a. the “fiscal cliff” – go into effect as planned on January 1.

Right now, income earned through dividends is taxed no higher than 15%. That rate could rise to as much as 39.6% if Congress does nothing to stop the fiscal cliff.

To prevent shareholders from jumping ship, some companies are issuing special dividends before the end of the year. According to a Wall Street Journal story, Dillard’s (NYSE: DDS), Las Vegas Sands (NYSE: LVS) and Ethan Allen interiors (NYSE: ETH) are among the companies that are offering special, one-time dividends by year’s end – before the fiscal cliff could take effect.

Las Vegas Sands’ special dividend will be $2.75 a share. Dillard’s dividend is a whopping $5 a share.

And though Wal-Mart isn’t issuing a special dividend, it bumped up the date of its fourth-quarter dividend payment from January 2, 2013 to December 27, 2012 – thus avoiding any higher tax rates.

Other companies joining the special/early dividend fray are:

  • Sturm Ruger (NYSE: RGR): Announced a special dividend of $4.50 a share, payable December 21.
  • Wynn Resorts (NASDAQ: WYNN): Paid an $8-per-share dividend last Tuesday, which included the stock’s regular quarterly payout of 50 cents a share.
  • Gyrodyne Company of America (NASDAQ: GYRO): I’ve never heard of this company, but whoever they are, they issued a mind-boggling $38.30 special dividend. That’ll grab people’s attention.

So at least that’s one good thing the impending doom of the fiscal cliff has brought. For some income investors, it’s Christmas come early.

If Congress doesn’t get its act together soon, however, those early dividend gifts may eventually turn into a lump of coal.

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