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Limited Brands (LTD), owner of Victoria's Secret and Bath & Body Works, loves to reward its shareholders. Their board is extraordinarily shareholder friendly - so friendly, I predicted Limited Brands would give another special dividend on top of their earlier $1 a share payment. Right on cue, the board took advantage of the 15% dividend tax treatment, declaring a second special dividend of the year - a juicy $3 payment scheduled to be mailed out the day after Christmas.

The board certainly does well here. Insiders hold over 7% of Limited's stock. CEO Leslie Wexner alone has a billion dollars worth of stock.

Present shareholders should be grateful. The checks will buy lots of goodies this season.

It's the next-generation of investors though that may be paying the piper.

Total bill for this year's $4 in special dividends and $0.75 in regular dividends - $1.4 billion. When last we checked, Limited Brands had $500 million in cash, $4.5 billion in debt, and -$500 million in equity. Gulp. I understand balance sheet reengineering - drain the cash, lever up the debt but really?

(click to enlarge)

(From most recent 10Q)

This is the fifth special dividend in the last 3 years (two this year; two in 2011; one in 2010.) Limited Brands has parted with over $3.7 billion in dividends and $2 billion in share repurchases over the last 3 years. Yet, Limited Brands' free cash flow was a much lower $2.2 billion over the same period.

The hand outs have emptied out every dime and nickel on the equity side of the balance sheet - and then some.

Retained earnings? Gone.

LTD Retained Earnings Chart

Long-term debt? Plenty.

LTD Long Term Debt Chart

Debt to equity?

LTD Debt to Equity Ratio ChartSometimes shareholder friendliness goes too far. We all know gift-giving gets expensive especially around holiday time. The problem: You've got to pay the bills come January.

Limited Brands' balance sheet is in need of repair. Better take the credit card away.

Source: Limited Brands: The Balance Sheet Needs Repairing

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