A special dividend is a payment made by a company to its shareholder

Shareholder

A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....

s that the company declares to be separate from the typical recurring dividend

Dividend

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

 cycle, if any, for the company. Usually when a company raises its normal dividend, the investor expectation is that this marks a sustained increase. In the case of a special dividend, however, the company is signalling that this is a one-off payment. Therefore, special dividends do not markedly affect valuation or yield calculations. Typically, special dividends are distributed if a company has exceptionally strong earnings that it wishes to distribute to shareholders or if it is making changes to its financial structure, such as debt ratio.

A prominent example of a special dividend was the $3 dividend announced by Microsoft

Microsoft

Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...

 in 2004 to partially relieve its balance sheet of a large cash balance.

Payment Date

For special dividends, the ex-dividend date is set one stock trading day after the dividend date (the date on which dividend payment is made, typically after the record date). The stock will trade on an ex-distribution basis (adjusted for the amount of the dividend paid) on the trading day after the dividend date. The determining factor for a special dividend is usually when the dividend is 20% or greater in relation to the underlying price of the stock/security.

To be entitled to a special dividend, you need to be a stockholder on the record date. To be a stockholder on the record date, your purchase would need to have been made a minimum of two business days prior to the record date. (See ex-dividend date.)

In the case of special dividends, the stock trades from the record date through the dividend date without adjustment in value for the amount of the dividend to be paid and then adjusts for the dividend paid and starts trading on an ex-distribution basis one stock trading day after the dividend date. To be entitled to receive the dividend, it is required that you be a stockholder on the record date and hold your stock through the dividend date in order to receive the dividend. When a special dividend is being paid, selling your stock between the record date and the dividend date relinquishes your right to the dividend.

The earliest you can sell your stock and still be entitled to the special dividend is the date the stock begins trading on an ex-distribution basis, or one day after the dividend date.

See also

• Dividend
  Dividend
  Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
  
  
• Dividend cover
  Dividend cover
  Dividend cover is the ratio of company's earnings over the dividend paid to shareholders, calculated as earnings per share divided by the dividend per share...
  
  
• Dividend tax
  Dividend tax
  A dividend tax is an income tax on dividend payments to the stockholders of a company.-Collection:In many jurisdictions, the government requires the company to withhold at least the standard tax, paying this to the national revenue authorities and paying out only the balance to the...
  
  
• Dividend units
  Dividend units
  In finance, a dividend unit is the right to receive payments equal to actual dividends paid on a share or a stock. A dividend unit can be granted for a term, for example 20 years from the date of grant....
  
  
• Dividend yield
  Dividend yield
  The dividend yield or the dividend-price ratio on a company stock is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is often expressed as a percentage...
  
  
• Dividend reinvestment plan or DRIP
• Liquidating dividend
  Liquidating dividend
  A liquidating distribution, sometimes called a liquidating dividend, is a type of nondividend distribution made by a corporation to its stockholders during its partial or complete liquidation. Like nondividend distributions, they are not paid out of the earnings and profits of the corporation...
  
  
• Stock buyback

External links

• Dividend Information A searchable database of dividend payouts and history for all stocks.