Investors who own shares of companies that pay dividends might be in line for
a little bonus this year.
Many companies, including several from central Ohio, are moving up into this year the payment of quarterly dividends that typically would be paid in 2013, or they are making special dividends payable before the end of the year.
Most of the credit for the trend goes to the pending "fiscal cliff." That's the combination of federal tax cuts that expire this year coupled with major reductions in spending set to kick in next year unless President Barack Obama and Congress act first.
If nothing happens, investors will have to pay higher tax rates on dividends beginning in 2013.
"We know the dividend tax rates are going up," said G. Scott McComb, president and CEO of Gahanna-based Heartland Bank, which is making its 32-cent dividend for the fourth quarter payable on Dec. 24.
McComb said the bank needs to move the dividend payment up by only a few days to make it work.
"It's a really simple thing we can do to increase the yield of our dividend to our shareholders," he said. "It's the least we can do."
Last week, investment-advisory firm Diamond Hill announced that it will issue a special dividend of $8 per share payable on Dec. 21.
It is the fifth straight year that Diamond Hill has paid a special dividend. Not all of the dividend will be taxable because it involves the return of some capital.
"The dividend decision was definitely influenced by the potential changes in tax law," said Ric Dillon, the firm's CEO.
Food company Lancaster Colony declared a special dividend of $5 per share in addition to its regular dividend that is payable Dec. 28, a move made possible because of the company's strong balance sheet.
"After careful consideration of the company's capital structure and likely cash needs, the board felt that the payment of a special dividend provides an appropriate return of value to shareholders while the company retains financial resources adequate to support additional specialty-foods acquisitions and other future growth opportunities," Lancaster Colony's chairman and CEO, John Gerlach Jr., said in a statement.
Shoe retailer DSW and footwear and accessories company R.G. Barry also say they will accelerate dividend payments into 2012.
These companies join more than 100 others across the country that have taken similar steps, including Costco Wholesale and Wal-Mart Stores. Technology company Oracle said it will accelerate the first three dividend payments that would be due in 2013 to be payable on Dec. 21.
Investors have paid a maximum tax rate of 15 percent on dividends since 2003. Next year, the rate will be taxed as the same as wages, meaning the rate would jump to
43 percent for the highest earners. That includes a tax on investments that starts next year for high-income families as part of the president's health-care law.
Even if a compromise is reached, tax rates on dividends still could end up higher.
"There's a potential to go over the cliff. These companies are being proactive," said Matt McCormick of the Cincinnati investment advisory firm Bahl & Gaynor.McCormick, a big advocate of buying shares in dividend-paying companies, said accelerating dividends is shareholder-friendly and not that hard for companies to do. Average investors, though, probably won't benefit much from the moves. Many small investors invest in mutual funds rather than directly in companies, or they own shares in retirement accounts, in which taxes aren't due until money is withdrawn.
If small investors hold stocks in taxable accounts, the extra amount they'll get in dividends probably won't make a big difference, said Gary Vawter of wealth-management firm Vawter Financial.
"I think it's a great idea for the insiders of the company," he said.
Information from the Associated Press and Reuters was included in this story.
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