Goldman Sachs has identified 15 companies as likely candidates to declare special dividends before tax hikes go into effect at the start of 2013.
The list includes MasterCard Inc. (MA), Wynn Resorts Ltd. (WYNN), and Stryker Corp. (SYK).
“A well capitalized corporate America, flush with cash, and a potential shift, regardless of party, in the tax rate higher in 2013 augur a wave of special dividend announcements, in our view,” said analysts at Goldman Sachs in a report.
Goldman noted that gross cash among non-financial firms has risen 55% since the end of 2007 and total cash to enterprise value has increased to 9% from 6% during the same period.
The scheduled expiration of tax cuts at the end of the year, part of the so-called fiscal cliff, means that dividends are likely to be taxed as ordinary income in 2013 at a rate of up to 43.4% versus 15% currently, according to the analysts.
“The 2001/2003 tax cuts were originally set to expire at the end of 2010, though, after months of political negotiations, the rates were extended in the final weeks of that year. Indeed 2010, saw the highest number of one-time dividend announcements, more than double the run-rate of 2000-2011 period,” they said.
In the last 12 years, 75% of companies that declared a special dividend outperformed the S&P 500 in the two days following. “The average outperformance over the two days and the 3 months following the announcement was 330 basis points and 380 basis points, respectively,” said the analysts.
They also noted that historically, announcements for special dividends tend to be concentrated in the fourth quarter.
Companies flush with cash are also increasing their ordinary dividends. In the past week, 8 members of the S&P 500 have raised their dividends. In the S&P 500 as a whole, 403 companies are currently paying dividends, the highest number since November 1999, according to Howard Silverblatt, S&P senior index analyst.
The complete Goldman Sachs special dividends candidate list:
Federated Investors Inc. (FII)
Franklin Resources Inc. (BEN)
General Dynamics Corp. (GD)
Interval Leisure Group Inc. (IILG)
Las Vegas Sands Corp. (LVS)
Mastercard Inc. (MA)
Molex Inc. (MOLX)
Och-Ziff Capital Management Group (OZM)
Patterson Companies Inc. (PDCO)
Pzena Investment Management Inc. (PZN)
Stryker Corp. (SYK)
TransDigm Group Inc. (TDG)
Western Refining Inc. (WNR)
Williams-Sonoma Inc. (WSM)
Wynn Resorts Ltd. (WYNN)