Understanding Special Dividends: What They Are & Why Companies Issue Them

Investors are familiar with regular dividends; however, the special dividend works a little bit differently. Here are the basics of the special dividend and why companies will sometimes offer it.

The Special Dividend

The special dividend is a one-time payment of cash to the investors in a particular stock. While a regular dividend will be paid out quarterly or annually, the special dividend will happen randomly. In addition to the random nature of its distribution, a special dividend will usually be quite a bit larger than a normal dividend payment would be. Some people also call this an extra dividend.

Why Companies Offer It

There are a few different reasons that a company could offer a special dividend. Typically, this will come soon after a company has posted a very successful quarter or year. This is a way to share the wealth with investors faster than waiting for the normal dividend payment.

In addition to paying out money after a good quarter, certain companies will also do it in order to make strategic changes in the way they do business. For example, they might want to focus more on debt financing instead of the equity financing that stock sales offer. This will often happen when a company is restructuring.