Donald Yacktman On The Positives And Negatives Of Special Dividends

As the special dividend surge continues to grow, Donald Yacktman of Yacktman Asset Management, discusses whether 2013 will be the year of stock dividends, instead of cash ones and buybacks, too.


site in new york city. the special dividend surge continues to grow. 98 special dividends announced this quarter totaling nearly $23 billion. three of those announced today. will 2013 be the year of stock dividends instead of cash ones and maybe buy backs, too. joining us is don yackman. we have seen the threat of higher taxes change the way companies behave and manage their cash. you think that next year we’ll see this in a different way. no more cash dividends. well, i’m hopeful that the ceos and boards are rational and eliminate cash dividends based on tax rates going from 15% to 43.6% and that is before new york and california get their share which would push people over 50%. in terms of companies that may proceed and do this do you think it is the same pool of companies that have issued special dividends this year, ones that are concerned about the tax issue? i think they are showing the leadership. i mean, if you look at like some of the people that are very respected, warren buffett hasn’t paid a dividend in a long time. his side kick just had cost co pay a $7 dividend with borrowed money. special dividend. i think a way to wean people off of cash dividends would be exactly to do what costco did and that is pay next four year’s dividends up front and say you have gotten it. and then they won’t have to come back with cash dividends in the future. do you prefer a company use their cash and just forget the tax issue? is it better for a company to buy back shares as opposed to issue dividends? yes. there is no question that from a tax efficiency standpoint that share buybacks are more efficient because not only do you avoid the tax on the dividends but the tax if you have a capital gain is only going to be on the part above your cost basis. so very few people have zero cost basis. so the tax will be very small. but the impplication of buy backs is that you are increasing the value per share therefore taking up the stock price. whenever i sell that i am still going to get hit with capital gains or ordinary income. i don’t see why it matters. again like i said you won’t pay a tax on all of the cash you receive. if you were to make a small tender offer across the board say the same rate as a dividend and everybody took it that would be the effect, the same thing as having a dividend but taxed at a much lower rate. we are going to leave it there. great to speak with you. okay. thank you. you follow him on twitter? you have to. not the ugly brokers. is that your subconscious speaking? reform broker. the ugly broker is some other guy. he had a term for dividends. cliffed ends. i like that. a copy right. speaking of the fiscal cliff we have breaking news in d.c.