Knowledge Centre
Special Dividend (also see Dividend section)
A special dividend, or extra dividend, is one that is paid outside of a company’s regular policy (i.e., quarterly, annual, etc.). It is typically non-recurring. It is usually the result of having excess cash on the balance sheet for one reason or another and is usually larger than the normal dividend, sometimes significantly.
Special dividends tend to be declared after an exceptionally strong period of earnings, the sale of a subsidiary or asset, or after achieving a financial milestone. An asset sale could include an intangible such as intellectual property.
A company may have a lot of cash built up on the balance sheet through retained earnings. It may decide not to reinvest that cash back into the business and choose to distribute it to shareholders. A good example of a special dividend policy was Microsoft’s special, one-time dividend of $3 a share in July 2004, valued at a total payout worth $32 billion.
A company may want to alter its capital or financial structure.
Remember: Assets = Liabilities + Shareholder Equity.
A special dividend can be used to alter a company’s capital structure by reducing shareholder equity and assets. By paying a special dividend, the company is altering the percentage of debt versus the percentage of shareholder equity used to finance the company.