Special Dividend

Companies that pay regular dividends usually aim to keep them stable and predictable. When a company has extra cash that it does not expect to recur, it may return it through a special dividend instead of raising its regular dividend.

Common reasons include selling a major business or asset, an exceptionally profitable year or a build-up of cash that the company does not need for investment.

For example, a company that normally pays 1.00 per share a year might pay a special dividend of 3.00 per share after selling a division for a large sum.

By labelling the payment as special, the company signals to investors that they should not expect it every year. This avoids setting expectations that would be hard to meet, since cutting a regular dividend can be badly received by the market.

When a special dividend is paid, the share price usually falls by roughly the amount of the dividend on the ex-dividend date, because cash has left the company. Shareholders receive the cash but own a correspondingly less valuable share, before considering any tax effects.