Investing

One-Time Dividends Today Versus Past (GRMN, LTD, MSFT, AXE, INSP)

Dividends reward shareholders through time.  One-time dividends are often thought of as windfall events, although in today’s world it may be getting the dividend payments out to shareholders in the most tax efficient way in case the tax rates end up reverting back to higher rates after 2010.  This morning we have seen a one-time dividend announcement from Garmin Ltd. (NASDAQ: GRMN) on the heels of a special one-time dividend from Limited Brands Inc. (NYSE: LTD).  We wanted to compare these two to the likes of Microsoft Corporation (NASDAQ: MSFT), Anixter International Inc. (NYSE: AXE), and InfoSpace Inc. (NASDAQ: INSP) for some added color.

Some do not like one-time dividends.  A steadily higher dividend and a promise to hike dividends down the road offers shareholders a benefit today and a benefit tomorrow from the higher income.  But the one-time dividend only helps holders at the record and payout dates.  One-time dividends can sometimes be bad for future shareholders who have to value a company with less cash.  We wanted to look at one-time dividends of the past and see if these new one-time dividends are good or bad for shareholders on an ongoing basis.

Garmin Ltd. (NASDAQ: GRMN) announced this morning that it will pay a one-time increase to $1.50 in its annual payment rather than $0.75 to holders of record on April 15.  The company is also moving its domicile of incorporation to Switzerland from the Cayman Islands to Switzerland if and after the shareholder vote on May 20.  Garmin has almost $1.8 billion in cash and long-term investments as of the end of 2009, and with roughly 200 million shares, this will take out about $300 million from the company coffers rather than the usual $150 million.

The vote from Wall Street is that this one-time dividend hike, as the company said was due to its strong results and cash position, is good.  If you bought shares yesterday around $35.30, the yield is 4.2%.  If you buy today at $36.65 the yield is about 4.08%.  So far the reaction is a very favorable one.  Shares are up 3.8% at $36.60 but the stock is up on thin volume.