Companies paying special dividends believe they will do well in the future, and by collecting the special dividend you have the opportunity to reinvest in the business at a lower price or keep the cash to invest when bad times come around.
optionsXpress (Nasdaq: OXPS) recently announced it will be paying a special dividend of $4.50 per share on Dec. 27 to shareholders of record on Dec. 13. At current prices, optionsXpress will have a one-year yield of 26%! That puts its one-year yield higher than the current top high yielders American Capital Agency (Nasdaq: AGNC) (19%) and Chimera Investment (NYSE: CIM) (17.6%). While this is a one-time thing, hence the name "special", high yielders can be interesting situations.
Source: Motley Fool
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Very novice investor here.
As I post this, the share price is $20.81. So if I buy 100 shares right now at $2081, on December 27th I'm going to get a $450 dividend? Why wouldn't I do that and then sell it all, spend about $26 on trading commissions ($12.99 each for the two trades) total, and pocket $425 easily? This sure seems like a "too good to be true" situation. Why hasn't the stock exploded much higher? I've got to be missing something.
Anon: Theoretically,the stock will go down by the amount of the dividend. It doesn't always happen, but does more so with large special dividends.
Best Wishes,
D4L