A special dividend is a one time dividend paid to shareholders that does not conform to a stock’s normal dividend payment schedule. Special dividends are normally paid out when either the company gets an exceptionally good earnings period, the company is restructuring its assets, the company just sold some substantial assets, or there is simply extra money on the balance sheet that the company wants to return to investors.
Special dividends that pay out under 25% of the stock value have a normal ex-dividend date and follow the rules outlined in our dividend overview guide. Special dividends that pay out over 25% of the stock’s value have different rules that we won’t go over in this guide due to these dividends being very rare.
In general - when a company pays out a special dividend, the stock price of that company will drop according to the value of that special dividend due to the dividend coming directly from the companies balance sheet making the company worth less.
Although the prospect of searching for stocks that pay high special dividends may seem alluring, it is generally a bad idea. This is due to the fact that the money that you are receiving in the form of a special dividend is coming right from the company's cash reserves. This means that the company won’t be able to re-invest that money into itself, hampering its growth.
One of the most famous large special dividends was given by Microsoft in 2003 when they paid out $3 per share totaling a $32 billion dividend!
As always - this post is not to be taken as financial advice. Please consult a financial advisor before making any financial decisions.