Beating Fiscal Cliff Skews Dividend Yields: Chart of the Day

Special dividends that many U.S. companies are paying out before a possible increase in federal tax rates may make dividend yields, a barometer of stock-market value, less useful.

The CHART OF THE DAY shows how the yield for one of these companies, Dillard’s Inc. (DDS), will increase after a one-time payout set for Dec. 21. Dividends will surge to about 6 percent of the share price from 0.23 percent yesterday.

Dillard’s, a department-store owner based in Little Rock, Arkansas, declared a $5-a-share special dividend two days ago. The amount equals 25 years of quarterly payouts at the current rate, 5 cents a share.

Dillard’s is among 17 companies in the Russell 1000 Index that have set a special dividend this quarter, according to data compiled by Bloomberg. Costco Wholesale Corp. (COST), the largest U.S. warehouse-club chain, declared a $3 billion payout today. Las Vegas Sands Corp. (LVS) and Carnival Corp. (CCL) are among the others.

“We would expect this trend to continue through year- end,” Dane Mott, an accounting analyst at JPMorgan Chase & Co., wrote yesterday in a report. Mott, based in San Francisco, wrote that companies are seeking to “take advantage of the favorable tax treatment for dividends in 2012 relative to the potential environment in 2013.”

Payouts made this year are subject to a 15 percent federal tax. Next year’s rate may rise to as high as 43.4 percent as part of the so-called fiscal cliff, a package of tax increases and spending cuts.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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