US firms set to hike dividends before tax rise

COMPANIES in the US could unleash a wave of special dividends before the end of this year in order to avoid forthcoming tax rises, according to research released yesterday.

President George W Bush cut taxes on dividend payments in 2003 but this is due to expire at the end of December. As a result the top rate of dividend tax for individuals will rise from 15 per cent to 39.6 per cent.

Data provider Markit suggests at least 80 companies will look to hand extra cash back to investors before the changes take place – compared to a fourth quarter average of 31 special dividends in normal years.

“Barring a last minute Congressional extension, it would benefit shareholders if companies declare and pay special dividends prior to the year-end expiration date,” Markit says.

The report draws comparison with the end of 2010, when the exemptions were originally expected to expire: “Special dividend announcements spiked [and] companies with dividend payment dates in early January moved their schedule to accommodate a payment in December.”

A substantial number of the payments came from firms with no regular dividend programme and many had executives with large shareholdings in their own company.