As we edge closer and closer to an impending fiscal cliff, the markets are doing a few peculiar things. You could have probably guessed that many investors have booked their gains before a potential rise in the capital gains tax, or are at least thinking about it. This pre-2013 profit-taking tactic has been speculated to be at least partially responsible for a selloff in shares of Apple Inc. (NASDAQ:AAPL), among other stocks that have seen their fortunes rise this year.
A strategy that may be flying a bit under the radar, however, is making short-term bullish bets on companies that may announce a special dividend in time for Christmas. A special dividend is just what it sounds like: a one-time payment made to shareholders outside of the normal dividend schedule. In this case, a company could initiate such a move if it wanted to bolster the confidence of income investors, some of whom may be faced with a net 15%-20% hike in dividend taxes (depending on the tax bracket they fall in) when the calendar turns over.
Courtesy: Apple Inc. (NASDAQ:AAPL) Press Info
An Apple "rental," as it was described by JC O'Hara of Phoenix Partners Group on CNBC today (see technicals vs. fundamentals battle here), may be a good play, but it's worth noting that nothing official has come out of Cupertino about a special dividend. Some other companies that have already graced their investors with this news include Las Vegas Sands Corp. (NYSE:LVS), Brown-Forman Corporation (NYSE:BF.B), Tyson Foods, Inc. (NYSE:TSN), and Sturm, Ruger & Company (NYSE:RGR) to name a few, though we haven't seen any notable tech names.
That could all change soon, however, according to CNBC's "Fast Money" segment this afternoon. In the program, a team consisting of the usual analysts discusses how it might actually be "reckless" for Apple Inc. (NASDAQ:AAPL) to not pay a special dividend due to the mountain of cash it's sitting on, which is currently over $120 billion high. According to Karen Finerman, we can reasonably assume that "a third of that is on-shore cash available to pay a dividend," and "if there's any company that should pay an enormous dividend, Apple is number one on the list."
Larry McDonald, a strategist for the investment firm NewEdge and author of the critically acclaimed A Colossal Failure in Common Sense had this to say about the situation: "I look to a screen of companies that have a lot of cash, companies that have heavy insider ownership and with massive stock outperformance versus the S&P over the past week, and Apple is on that list."
Regarding the creeping fiscal cliff, McDonald said that he doesn't see a potential deal shaking out until the week before Christmas, which in our opinion, would imply that companies thinking about paying special dividends would be under more pressure to do so. Apple Inc. (NASDAQ:AAPL) is no exception, but it remains to be seen exactly if it will fork over an extra payment to ease the qualms of income investors. While there have been rumors that Apple has a multi-billion dollar lifeline to Sharp in order to keep supply chains intact, this represents but a drop in the tech giant's proverbial bucket of cash.
Do you think AAPL will - or even should - pay a special dividend to its shareholders? Let us know your thoughts in the comments section below.