An increasing number of companies are paying dividends, and those payments are getting larger as a percentage of profits. As of the end of 2016, the average payout ratio among S&P 500 companies reached 40.2%, and total payouts by dividend stocks for the prior year were a staggering $431 billion.
That’s almost $1.2 billion in dividends per day.
At least, that’s the official count. The true payout is actually much higher because there are dozens of supplemental dividends that go unreported each quarter. By unreported, I’m not talking about some secret way of transferring cash to a select group of well-connected insiders. These extra payments are dished out openly and uniformly to all shareholders. But they are considered “special.” As such, these distributions aren’t reflected in the yields you see quoted on popular financial sites like Yahoo or Morningstar.
But trust me, the cash is just as green and spends just the same as any other dividend. And these special payments typically come in much bigger denominations, often 10 to 20 times larger than the firm’s regular quarterly dividend.
There’s no special trick or complicated system to capturing these dividends — you just have to know where to look. For example, if you own shares of the warehouse retail chain Costco Wholesale Corporation (NASDAQ:COST), then you know exactly what I’m talking about.
Earlier this year, the company announced plans to hand out a special dividend of $3 billion, or $7.00 per share.
For context, Costco currently pays a quarterly dividend of $0.50. So the special distribution of $7.00 is equivalent to paying the next 14 quarterly dividends all at once.
Even wilder is that this isn’t the first time this has happened: Costco paid out an identical special dividend in 2012. About that same time, casino resort owner Las Vegas Sands Corp. (NYSE:LVS) returned $2.4 billion ($2.75 per share) to its investors through a one-time cash payment. Department store owner Dillard’s, Inc. (NYSE:DDS) got in on the act as well and decided to hand over $5.00 per share.
These were just three of 175 companies that made special dividend payments totaling $14.6 billion in November and December 2012. Granted, this was a period of unusually high activity. Dozens of companies were trying to beat the clock and avoid a possible dividend tax increase the following year. But even without that impetus, special dividends remain a popular way for companies to give a little something back — if you can call a few billion dollars “little.”
Where to Find Special Dividend Payers
Barely a day goes by where I don’t see at least one or two announcements of upcoming special payments. And when I notice one that’s particularly enticing, I always let my High-Yield Investing premium subscribers know about it. Yet these special payments don’t usually get much fanfare. Unless you have your ears glued to the ground like I do, you probably wouldn’t even notice them.
But they are happening all the same.
Vodafone Group Plc (ADR) (NASDAQ:VOD) paid a special dividend of $1.26 per share in 2014. And that’s actually modest for this type of transaction. Some distributions are much larger. The same year, Aircraft parts supplier TransDigm Group Incorporated (NYSE:TDG) shelled out a one-time cash payment of $25.00 per share (a 13.1% yield).
Not every company that pays a special dividend will be a viable investment candidate. To be honest, some are not worth your time. But there are plenty of attractive, financially sound businesses that have embraced this method of rewarding stockholders, including Dish Network Corp (NASDAQ:DISH), Whole Foods Market, Inc. (NYSE:WFM) and Microsoft Corporation (NASDAQ:MSFT).
That’s why I created the High-Yield Investing Special Dividend-Payers Index. Every month, I showcase companies that are rewarding investors with special dividends. I also watch the proprietary StreetAuthority Special Dividend-Payers Index, which monitors the share price performance of companies that habitually return a portion of their annual profits through bonus payments.
This information is typically only available to my paid subscribers, but today I’ll share my latest pick with you…
This 7.1% Yielder Makes 14 Dividend Payments Per Year
Main Street Capital Corporation (NYSE:MAIN) is the only company I know of that regularly makes 14 dividend payments a year — 12 regular monthly payments and a pair of special distributions in June and December.
In May, the company approved ordinary dividends of $0.185 per share for June, July, and August, totaling $0.555 for the quarter. In addition, it paid the first semi-annual special dividend in the amount of $0.275 per share on June 15.
At the current rate, the company will distribute a total of $2.77 per share this year for a robust yield of 7.1%. You’ll notice that sites like Yahoo quote a yield of 5.7%, but that figure only includes the regular dividends and doesn’t reflect the special payments.
In any case, few reputable companies offer yields that are three to four times the S&P 500 average. And most that do are shaky at best. But this business development company has the financial clout to make these outsized payments.
Main Street specializes in lending capital to mid-sized private businesses with $10 million to $150 million in annual sales. The company has nearly 200 of these borrowers in its portfolio, with an average weighted yield on these loans of 10.1%.
Importantly, the portfolio produced distributable net investment income of $0.61 per share. That was more than enough to cover the $0.56 ordinary dividend — for the 25th quarter in a row. Not once in its history has Main Street needed to cover a shortfall in its dividend by distributing a return on capital.
With another solid quarter in the books and a special dividend on the way next month, this 7.1% yielder is worthy of strong consideration.
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