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Lemmings Grasp Special Dividends Ahead of Fiscal Cliff

NEW YORK ( TheStreet) -- New tax laws and regulations often force those affected to find creative ways around them.

We are seeing the early manifestations of this as scores of companies declare special cash dividends to be paid in 2012, ahead of the expected increases in taxes on qualified dividends.

In some cases, depending on income, the tax rate is scheduled to nearly triple from 15% to 43.4%, and some companies are rushing to push cash out to shareholders.

The granddaddy of them all, so far, is Costco's (COST - Get Report) $7 special dividend, which will cost the company $3.024 billion, by my calculation. But that will still leave the company with more than $1.8 billion in cash and short-term securities.

Oracle (ORCL - Get Report) is taking a different approach, announced yesterday, by accelerating its normal six-cents a share dividend for the next three quarters, paying it all out at once prior to year end.

But my favorite special cash dividend story is that of Tellabs (TLAB), a company I profiled two weeks ago after it fell below net current asset value.

The company, which ended the latest quarter with $1.143 billion in cash on the books -- nearly equal to its market cap, has declared a special $1 a share cash dividend. Tellabs will distribute about $367 million to shareholders and will still be left with more than $775 million in cash and short-term investments, or about $2.11 per share. Shares jumped more than 20% after the special dividend was announced.

I expect that we'll see more special dividend announcements in the coming days, but the changes in tax law will no doubt have more far-reaching implications. Admittedly, we still don't know for sure what, if any deals will be done by year-end in order to avoid the fiscal cliff. I presume that a deal will be reached and some type of compromise will be made.
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