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TheStreet Open House

10 Stocks With Special Dividend Potential

NEW YORK ( TheStreet) -- Special dividends are attractive to companies with cash to spare and high levels of inside ownership, and TheStreet has identified ten stocks with strong potential to take the plunge in 2010.

A heavy insider presence is a factor right now because these payments represent a last chance to pocket some cash while paying a maximum of 15% in federal taxes. The 15% cap on taxation of dividend income -- part of the Bush Administration's set of tax cuts in 2003 -- is set to expire at the end of the year, and it would seem Congress has bigger fish to fry, such as the Gulf oil spill and financial reform, at the moment.

Using data supplied by FINVIZ.com, we narrowed down U.S. stocks traded on the New York Stock Exchange, American Stock Exchange or NASDAQ, using the following criteria:

  • Three-month average trading volume over 100,000 shares.
  • Insider ownership greater than 20%.
  • Positive dividend yield.
  • Debt to equity ratio under 0.5.
  • Quick ratio above 1.5.
  • The quick ratio is a company's cash, marketable securities and receivables, divided by its total liabilities.

    We then pared the list down further, to the following ten stocks with the strongest Buy recommendations from TheStreet Ratings.

    Diamond Offshore Drilling (DO) is something of a poster company for the special dividend, as it's adopted a policy of considering such payments each quarter in addition to its quarterly dividend of 12.5 cents a share, and has subsequently done so in each quarter for the past two years, but it was excluded from this list because too few shares are held by insiders.

    Also, Interactive Data (IDC) would have topped our list, but the company announced a deal to be acquired by private equity funds managed by Silver Lake and Warburg Pincus for a cash consideration of $33.86 per share on May 4. The deal is not subject to a vote, because Pearson Plc (PSO) controls more than 60% of Interactive Data's shares and has already approved the deal.

    While having excess cash is a wonderful thing, it's important to consider a company's longer term prospects as well. Investors with short-term horizons need to remember that -- all things being equal -- the special dividend "comes out of the share price" on the ex-dividend date. That's the date on which you need to be an investor of record to be eligible to receive the dividend.

    These ten Buy-Rated stocks have above-average special dividend potential...

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