The prospect of a special dividend is not only confined to mega-cap names. Smaller companies, which cringe at the prospect of a weaker economy or higher taxes, may find the best capital-allocation decision is to give cash back to shareholders. Look at retailer Stein Mart (SMRT), which has a history of paying out special dividends. The stock trades for less than $8, it is debt-free and it sits on more than $2 a share in cash. In addition, insiders own nearly 40% of the shares.
Until we get closer to year-end, it will remain uncertain what form the various tax rates will take. But companies can wait until the very end to make capital budgeting decisions. Whether additional dividend payments are made is anyone's guess, but I do know that the time has never been better for companies to return cash back to shareholders.
In situations in which insiders themselves are significant shareholders, as well, you can bet that the discussion of a special dividend is not a casual one. Between now and Nov. 6, I would pay attention to companies with cash rich balance sheets and management teams that own substantial amounts of their own stock.
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