Dividend glossary

Special Dividend

A special dividend is a one-time, irregular cash payment made to shareholders, distinct from the regular quarterly or monthly dividend. Companies often pay special dividends when they have excess cash from asset sales, unusually strong earnings, or accumulated cash.

In more depth

Special dividends are welcomed by investors but shouldn't be mistaken for recurring income. A single special dividend doesn't change a company's ongoing dividend commitment. For retirement income planning, only the regular dividend stream is reliable.

When companies pay special dividends

Common triggers:

  • Asset sale proceeds: A company sells a division or property and distributes the excess cash
  • Unusually strong earnings: Cyclical businesses in boom years (energy, mining) sometimes add special dividends on top of regulars
  • Balance sheet cleanup: A company that has accumulated excess cash decides to distribute rather than hold it
  • Going-private transactions: A company acquired by private equity sometimes makes a leveraged recap dividend

Special dividends and dividend streaks

Special dividends don't count toward the consecutive annual increase streaks that define Dividend Aristocrats and Dividend Kings. Only regular dividends count. A company can pay a large special dividend in year 15 of a streak without it affecting the official count.

This is actually good news for streak investors: special dividends are pure bonus cash, not part of the streak mathematics.

Tax treatment

Special dividends are taxed the same way as regular dividends, qualified or ordinary depending on the source and holding period. They appear on your Form 1099-DIV at year-end alongside regular dividends.

Related terms

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