With their coffers loaded with cash, US companies may make special dividend payments in the fourth quarter of 2012, according to research by Goldman Sachs. They are also making extra-large stock repurchases, according to Standard and Poor’s.
“A well-capitalized corporate America, flush with cash, and a potential shift, regardless of party, in the tax rate higher in 2013 augur a wave of special dividend announcements,” wrote Goldman Sachs’ Robert Boroujerdi in a note to clients Friday. “Combining the year-to-date special dividend announcements with the traditional 4Q trend, we expect 2012 to set a record.”
Companies have been well positioned over the past few years to deploy their growing cash piles. Some have chosen to buy back stock: S&P Dow Jones Indices in fact announced today that S&P 500 stock buybacks increased 32.6 percent to $111.7bn during the second quarter of 2012, an increase from the $84.3 billion spent on buybacks during the first quarter of the year.
But many companies are boosting dividends. This has been particularly true in information technology sector, where some companies have become the largest dividend payers. Oracle actually this summer announced it would do both a buyback and a dividend. And Cisco also recently announced a boost to its payout, saying that it would increase its dividend by 75 percent.
There could be a variety of reasons for the payouts – certainly there are limited investment options with any meaningful return – but Goldman said that with tax rates set to rise, it sees increased potential for liquidity events ahead of any changes. Goldman also noted that special dividend announcements tend to come in the fourth quarter historically, with nearly half of the announcements since 2000 being made in final quarter of the year. It also said companies outperform the S&P 500 in the days and months following the announcement.
As for buybacks, AT&T has been very active, according to S&P. The company “returned to the buyback program during the first quarter with $2.1 billion in repurchases” and added another $2.6bn in buybacks during the second quarter, placing it as the fifth highest total for the quarter. S&P also pointed to American International Group, which purchased $2bn in stock during the second quarter, as having recently completed a $5bn repurchase. Johnson & Johnson’s $12.9bn in buybacks “ranked as the highest expenditure in the quarter and was the second highest quarterly repurchase in history with the $15.7 billion spent by International Business Machines in the second quarter of 2007 still holding the record,” S&P said.