Due to glaring inaccuracies by seemingly authoritative sources, the term special dividend is widely misunderstood. A special dividend is nothing more than a dividend that is not regularly scheduled.
Contrary to what is erroneously posted on several popular websites, the size of a dividend has no bearing on the classification of that dividend as a special dividend.
Contrary to what is erroneously posted on several popular websites, the ex-dividend date for a special dividend is not always the first trading day after the payment date. In fact, in a great many cases it is not. Only when the dividend equals or exceeds 25% of the stock's trading price is the ex-date the first business day after the payment date, in which case the ex-dividend date is called a deferred ex-date.
Contrary to what is erroneously posted on several popular websites, to be entitled to receive a dividend of a stock trading with a deferred ex-dividend date, it is not required that you be a stockholder on the record date and hold your stock through the dividend payment date. As is true with all cash dividends, buy before the ex-date (even one day before) and hold at least until the ex-date and you will receive the dividend, even in cases of a deferred ex-date.
(And, contrary to what is erroneously posted on several other websites, the threshold for a deferred ex-date is 25%, not 20%.)
A special dividend may be declared by a company that otherwise doesn't pay dividends or it may be in addition to regularly scheduled dividends. A special dividend paid by a company that also pays a regularly scheduled dividend is not necessarily larger than the company's regular dividend. Many times it is, but often times it is not.
The source of the funds for special dividends, whether from earnings, legal settlements, partial liquidations, or any other source, has no bearing on the classification of a dividend as a special dividend.
Special dividends follow the exact same dividend date rules as any other dividend. FINRA (Financial Industry Regulatory Authority) establishes all stock trading rules for all U.S. stock exchanges and there are only two sets of dividend date rules for U.S. publicly traded companies -- one for normal distributions, which are dividends or distributions that represent less than 25% of the stock's trading price, and the other for dividends or distributions equal to or exceeding 25% of the stock's trading price. From FINRA's website, those two sets of rules are as follows:
(1) In respect to cash dividends or distributions, or stock dividends,
and the issuance or distribution of warrants, which are less than 25% of the
value of the subject security, if the definitive information is received
sufficiently in advance of the record date, the date designated as the
"ex-dividend date" shall be the first business day preceding the
record date if the record date falls on a business day, or the second business
day preceding the record date if the record date falls on a day designated by
the Committee as a non-delivery date.
(2) In respect to cash dividends or distributions, stock
dividends and/or splits, and the distribution of warrants, which are 25% or
greater of the value of the subject security, the ex-dividend date shall be the
first business day following the payable date.
Foreign stocks and American Depository Receipts traded on U.S. exchanges may or may not follow the dividend date rules for U.S. companies, depending upon the decision, in each case, of FINRA:
(3) In respect to stock dividends and/or splits relating to American Depository Receipts (ADRs) and foreign securities, the ex-dividend or ex-warrants date shall be designated by the Committee.
Read the official dividend date rules on FINRA's website here.Take note that the term special dividend is irrelevant to the establishment of dividend dates, as is evidenced by the fact that special dividend does not appear anywhere in the dividend date rules, and indeed does not appear anywhere on FINRA's website.
"Special dividend" is an informal term not recognized by the Financial Industry Regulatory Authority.
Click here for a thorough explanation of how dividend date rules work.
As further proof that special dividends are nothing more than dividends that are not regularly scheduled, here are five examples of special dividends that were not especially large, and therefore did not use a deferred ex-date. In one of the examples the special dividend was smaller than the regular dividend. Normal dividend date rules applied to all:
Limited Brands (LTD) declared a special dividend of $3.00 on November 18, 2010. LTD's share price closed at $32.14 per share that day, resulting in the $3 special dividend representing 9.3% of the company's closing price, far short of the 25% threshold to trigger the use of a deferred ex-date.
Click Here To Read LTD's Special Dividend Declaration
Limited Brands (LTD) declared another special dividend, this time of $1.00, on May 31, 2011. LTD's share price closed at $39.96 per share that day, resulting in the $1 special dividend representing 2.5% of the company's closing price, far short of the 25% threshold to trigger the use of a deferred ex-date.
Click Here To Read LTD's Special Dividend Declaration
Douglas Dynamics (PLOW) declared a special dividend of $.37 on March 8, 2011. The 37 cents was in addition to its regular 20 cent dividend, for a total payment of 57 cents. PLOW's share price closed at $14.90 per share that day, resulting in the $.57 combined regular & special dividend representing 3.8% of the company's closing price, far short of the 25% threshold to trigger the use of a deferred ex-date.
Click Here To Read PLOW's Special Dividend Declaration
Columbia Banking (COLB) declared a special dividend of $.05 on October 27, 2011. The five cents was in addition to its regular eight cent dividend, for a total payment of thirteen cents. COLB's share price closed at $18.77 per share that day, resulting in the $.13 combined regular & special dividend representing six tenths of one percent of the company's closing price, far short of the 25% threshold to trigger the use of a deferred ex-date.
Click Here To Read COLB's Special Dividend Declaration
Weis Markets (WMK) declared a special dividend of $1 on October 27, 2011. The $1 was in addition to its regular 30 cent dividend, for a total payment of $1.30. WMK's share price closed at $40.54 per share that day, resulting in the $1.30 combined regular & special dividend representing 3.2% of the company's closing price, far short of the 25% threshold to trigger the use of a deferred ex-date.
Click Here To Read WMK's Special Dividend Declaration
Obviously, special dividends need not be large or use a deferred ex-dividend date.
For a quick review:
1. Special dividends are simply dividends that are not
regularly scheduled.
2. The size of a dividend has no bearing on the
classification of a dividend as a special dividend.
3. Payment of special dividends of less than 25% of a
company's stock price follow the exact same dividend
date rules as normal dividends.
4. Payment of special dividends of 25% or more of a
company's stock price use a deferred ex-date.
Click Here to Return to Dividends Are Not Free Money
Click Here For An Explanation of Prorated Dividends.
Click Here To Read Owner vs. Owner Of Record:
At What Point Do You Become The Owner Of A Stock?
000001 TS @ BD +3; 230331, 10.15.17
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DEFINITIONS
Business
Day
A day on which the stock exchanges and
the banks, agencies & depositories for securities in New York State
are open
for business. Any day on which the stock exchanges are open but the
banks are closed is not counted as a business day for the purpose of
calculating dividend ex-dates.
Conditional Dividend/Distribution A dividend or distribution contingent upon an event or circumstance that has not yet happened at the time of declaration.
Declaration Date The date a dividend is declared by the company. The amount of the dividend is also declared except in some cases of a conditional dividend.
Deferred
Ex-Dividend Date
An ex-dividend
date that occurs
one business day after the payment date.
Distribution
The payment of cash or securities that are not part of a company's
earnings.
Dividend
A payment of earnings to shareholders.
Due Bill
A statement of money owed.
Ex-Dividend/Distribution Date The first day on which a stock trades without the right to receive the dividend/distribution.
Normal
Dividend/Distribution
A dividend/distribution amounting to less than 25% of a
company's stock price.
Owner
of record
The registered owner of a
security on
the Record Date.
Payment Date
The day the dividend payment
is
made.
Record Date The day a buyer of a stock must be the registered owner (owner of record) to receive a dividend.
Special Dividend A dividend that is not regularly scheduled.
T+2 Settlement
Rule
The requirement that securities transactions be settled in two
business
days. (Before September, 2017, securities transactions were
settled in three business days. Before June 7, 1995, securities
transactions were settled in five business days.)