Special Dividend
A one-time, non-recurring cash distribution to shareholders separate from and in addition to any regular dividend.
What is Special Dividend?
A special dividend is a one-time, extraordinary cash payment made to shareholders that is separate from and in addition to any regular quarterly dividend. Special dividends are typically funded by accumulated excess cash from operations, proceeds from an asset sale, a litigation settlement, or another windfall event. Because they are non-recurring, a special dividend does not signal a permanent change in dividend policy and companies are careful to distinguish them from regular dividends to avoid setting expectations for future payments. Shareholders typically receive the special dividend on a separate payment date from regular dividends, and the stock price declines by approximately the special dividend amount on the ex-dividend date as the cash leaves the company's balance sheet.
Example
In December 2012, Costco Wholesale Corporation paid a one-time special cash dividend of $7.00 per share to its shareholders—the company's first special dividend—totaling approximately $3.08 billion in aggregate cash distributed. Costco funded the dividend through a combination of $3.5 billion in new debt issuance and existing cash, timing the payment ahead of anticipated increases in the federal dividend tax rate. The special dividend represented approximately 4.7% of Costco's total market capitalization at the time.