In February, I declared that 2010 would be the year of the special dividends. I reasoned that companies would push as much dividend booty toward shareholders as they could to take advantage of the ending 15% dividend tax treatment. I predicted that companies with big insider holdings would pass out incredibly big checks before dividends became taxed as ordinary income (up to 39% next year).
That's prediction is coming true:
- Guess (NYSE:GES) just announced a $2 special dividend to be paid in December.
- The Buckle (NYSE:BKE) last week came out with a $2.50 special dividend.
- Limited Brands (LTD) is handing out its second special dividend of the year, this time $3 a share.
- AboveNet (NYSE:ABVT) is giving out $5 a share.
- Armstrong World Industries (NYSE:AWI) sends $13.74 to shareholders.
- Forrester Research (NASDAQ:FORR) hands out $3.
- Ameron (NYSE:AMN) mails out checks for $3 a share.
"Cash factory" stocks are taking advantage of a "last chance" 15%-taxed dividend. The list is quickly growing as companies rush to place special dividends before December 31. The list will continue to grow.
These incredible dividends create quite a dilemma for short sellers. For instance, as of October 29, the short percentage of the float for BKE was 38% while the short ratio was 18%. On October 29, the stock traded at $29.
Today, the BKE sells for over $38 with a $2.50 dividend coming to holders of December 3. Imagine the pain for those who shorted the stock. Imagine their dilemma. After such a huge runup, do you cover or continue your short and pay the dividend. Short sellers have seven business days to decide.
Disclosure: Long BKE, no other positions in stocks named