By GREGORY ZUCKERMAN
Staff Reporter of THE WALL STREET JOURNAL
Investors are becoming more special -- at least when it comes to dividends.
Less than a year after a change in the tax law made dividends more attractive for many investors, some companies are starting to issue "special," or one-time, dividend payments that amount to significant windfalls for shareholders.
Today, Anixter International Inc., a Glenview, Ill.-based company with a market value of just over $1 billion, will announce a special dividend of $1.50 a share. At least 10 other companies have issued special dividends to their shareholders in recent months, including a $1-a-share dividend announced in November by Barra Inc., a Berkeley, Calif.-based research company.
Meanwhile, speculation is increasing that Microsoft Corp. might share its wealth with investors later this year with its own special dividend. Microsoft declined to comment.
"A lot of people think that after Microsoft gets through its litigation issues ... it will do a dividend distribution of some of its massive cash" holdings, says Andrew Bischel, president and chief investment officer at SKBA, a San Francisco based money-management firm.
The move to issue one-time dividends comes amid signs that more companies are regularly paying dividends, after the tax law change last year that slashed dividend-tax rates for most investors. The top federal income-tax rate on most corporate dividends is 15%, starting in 2003, compared with rates as high as 38.6% in 2002.
The lower rate applies to both special and regular dividends. A total of 229 companies boosted their dividends by an average of 26% last year, according to Standard & Poor's, with at least 14 doubling their payout and 33 companies increasing their dividends more than once. Twenty-one companies, including Microsoft and Best Buy Co., started paying dividends for the first time, the biggest number of new payers in at least 24 years, according to S&P.
But some companies, like Anixter, the world's largest distributor of electrical wire and cable, still aren't comfortable initiating regular dividend payments and instead opt for a special payout. Anixter has overcome difficulties during the economic downturn, and now is sitting on a bulging cash horde. But executives there say they may want to use future cash flow for growth, rather than funding a regular dividend.
"When you have a business with excess capital it is appropriate to consider returning some to shareholders," said Dennis Letham, chief financial officer of Anixter, who said the tax change figured heavily into the company's decision. "We came through the recessions with extremely strong levels of cash flow, and we're a company with variable cash needs" and at this point don't have a need for the extra cash. Anixter will spend about $55 million on the cash dividend payout. The dividend is payable March 31 to investors holding Anixter shares as of March 16.
Lately, it's been smaller companies that have turned to special dividends, such as Middleby Corp., which announced 25 cents a share in October, and Electro Rent Corp., which announced its own special dividend of $4 a share in October.
Special payouts are good news for shareholders, of course. But some analysts warn investors not to get excited about these windfalls, saying that special dividends are not necessarily an indication of better things to come at a company or a reason to buy a company's stock.
"The real value is with companies that pay a dividend and establish an ongoing dividend policy," said Mr. Bischel
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com.
Updated February 12, 2004