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A special dividend is a payment made by a company to its shareholders, that the company declares to be separate from the typical recurring dividend cycle, if any, for the company.
Usually when a company raises the amount of its normal dividend, the investor expectation is that this marks a sustained increase. In the case of a special dividend, however, the company is signalling that this is a one-off payment. Therefore, special dividends do not markedly affect valuation or yield calculations, unless the amount is large—in which case they do markedly affect valuation as they are a direct and large depletion of the assets of the company. Typically, special dividends are distributed if a company has exceptionally strong earnings that it wishes to distribute to shareholders, or if it is making changes to its financial structure, such as debt ratio.
A prominent example of a special dividend was the $3 dividend announced by Microsoft in 2004, to partially relieve its balance sheet of a large cash balance.[1]
A more recent example of a special dividend is the $1 dividend announced by SAIC (U.S. company) in 2013, just prior to it splitting off its solutions business into a new company named Leidos.[2] Subsequently, in 2020 NortonLifeLock Inc (NASDAQ: NLOK) paid a $12/share special dividend as part of its goal to return the after-tax proceeds from the sale of its Enterprise Security assets to Broadcom.[3]
^"Microsoft Outlines Quarterly Dividend, Four-Year Stock Buyback Plan, And Special Dividend to Shareholders". PressPass - Information for Journalists. Microsoft. July 20, 2004. Retrieved 2006-11-09.
^Chew, Steve (April 5, 2013). "SAI - Ise.com" (PDF). Ise. Retrieved 2013-05-25.
^"NortonLifeLock Declares $12 Special Dividend". www.businesswire.com. 2020-01-09. Retrieved 2022-02-02.
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