ETFs For The Special Dividend Craze

Bull call spread on LVS looks for Q3 earnings to impressIt appears the dreaded fiscal cliff is good for something.

“Something” being the spate of special dividend news investors have been treated to in recent days. Amid fears the fiscal cliff will not be settled before year-end, companies (and investors) are fearful the dividend tax rate will soar in 2013.

Those fears have prompted a special dividend outbreak as companies ranging from Las Vegas Sands Corp. (NYSE:LVS) to Costco Wholesale Corporation (NASDAQ:COST) have announced special payouts to investors that will be taxed at the current dividend tax rate of 15 percent. Speaking of Costco, the warehouse store operator today announced a special dividend of $3.07 billion, thus far the largest of the special payouts to be announced.

The fiscal cliff has prompted an increase number of special dividends. Just this quarter, 63 companies have announced special dividends compared with 44 all of last year, according to CNBC. That elevated means it is tempting for investors to guess what companies will be next to unveil these lucrative payouts, but rather than play the guessing game, sector ETFs could prove to be the more practical bet. Consider the following.

Market Vectors Gaming (NYSEARCA:BJK) Las Vegas Sands Corp. (NYSE:LVS), the owner of the Palazzo and Venetian, announced a special dividend of $2.75 per share earlier this month. That move followed a juicy $7.50 per share special dividend announced by rival Wynn Resorts, Limited (NASDAQ:WYNN) in the third quarter.

Those two companies combine for nearly 15 percent of Market Vectors Gaming (NYSEARCA:BJK) weight. Conventional wisdom holds that with Las Vegas Sands and Wynn being the dominant names among casino stocks, the special dividends announced by these firms could trigger similar moves from rivals that are also Market Vectors Gaming (NYSEARCA:BJK) constituents. For now, that is just speculation. However, the good news is investors can still get in on the Sands special dividend, which will be paid on December 18 to shareholders of record as of December 10.

Technology SPDR (NYSEARCA:XLK) In 2012, the technology sector has become the largest dividend-paying group in the U.S. and expectations are that dividend growth in the tech space will be lucrative in the coming years. That is if the fiscal cliff is avoided.

Assuming that the boards of tech companies let fiscal cliff fears get the better of them, it is reasonable to expect multiple special dividend announcements from some of the names found in the Technology Select Sector SPDR. Technology SPDR (NYSEARCA:XLK), and the tech sector in general, make for obvious special dividend candidates for two reasons.

First, companies need to have sturdy cash positions to pay special dividends and many of Technology SPDR (NYSEARCA:XLK) holdings are among the most cash-rich firms in the U.S. Second, another clue investors want to look for about special dividend contenders is inside ownership. For example, Microsoft Corporation (NASDAQ:MSFT) CEO Steve Ballmer is a major holder of his company’s stock. Another example is Steve Jobs’s widow being a significant shareholder of Apple Inc. (NASDAQ:AAPL).

It may sound trite, but insiders like dividends just as much as retail investors. Apple, Microsoft and Oracle Corporation (NASDAQ:ORCL) all stand as valid special dividend candidates given their robust cash positions. Those three stocks combine for about 31 percent of Technology SPDR (NYSEARCA:XLK) weight.

First Trust Energy AlphaDEX Fd (NYSEARCA:FXN) The First Trust Energy AlphaDEX Fund is a “looser” special dividend candidate than the other ETFs highlighted here for a couple of reasons. First, for as much cash some of the major integrated oil names have on their balance sheets, the energy sector has not yet been heralded as a potential special dividend mecca. Second, given the massive floats of stocks such as Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX), insider ownership is small on a percentage basis.

Along those lines, it must be noted FXN is home to 52 stocks and the ETF is weighted much differently than rival funds such as the Vanguard Energy (NYSEARCA:VDE) or the Energy Select Sector SPDR (NYSEARCA:XLE). No single stock accounts for more than 3.86 percent of FXN’s, which says it will take multiple special dividend announcements to really move the needle here.

It is possible. A case can be made that roughly 20 percent of FXN’s constituents are legitimate special dividend candidates. Murphy Oil Corporation (NYSE:MUR) has already been hailed as one. Apache Corporation (NYSE:APA) can afford a special dividend as well. Even before all the fiscal cliff chatter, Diamond Offshore had a tradition of special payouts. National-Oilwell Varco, Inc. (NYSE:NOV) cash position is conducive to a special dividend as well. That is just four names, but FXN has more that could deliver the dividend goods before year-end.

This article was originally written by The ETF Professor, and posted on Benzinga.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!