Special dividend

A special dividend is a non-recurring distribution of cash (or occasionally stock) that a company pays in addition to, or instead of, its regular dividend. It is typically declared after an unusual event such as the sale of a business, a legal settlement, an exceptionally profitable year or a decision to return excess cash.

How it works

Special dividends follow the same declaration, ex-date, record date and payment date sequence as regular dividends, with two important differences:

• Ex-date for large distributions: when the dividend equals roughly 25% or more of the stock's value, the ex-dividend date is set as the first business day after the payment date. Shares sold before the ex-date trade with "due bills" that pass the dividend to the buyer.
• Options adjustments: the Options Clearing Corporation generally adjusts listed option contracts for special cash dividends above a minimum size, while ordinary regular dividends do not trigger an adjustment.

Companies often label a payment "special" to signal that shareholders should not expect it again, which preserves flexibility compared with raising the regular dividend.

Why it matters for traders

A special dividend can attract buyers before the ex-date and signals strong cash generation or a capital return decision. The share price adjusts down by roughly the payout on the ex-date, all else equal, so the payout is not a free gain. Traders compare it with a share buyback: a special dividend returns cash to all holders equally and immediately, while a buyback reduces the share count over time. Forward dividend yield figures usually exclude special payments, which can make trailing yields look misleadingly high afterward.

Example

Cobalt Ridge Mining (ticker CBRM) sells a non-core mine for $300 million and declares a special dividend of $2.00 per share on its 50 million shares, a $100 million payout, alongside its regular $0.25 quarterly dividend. With CBRM at $40, the special payout is 5% of the share price, below the 25% threshold, so the ex-date follows the normal schedule.

FAQ

Do stock prices drop after a special dividend?

Typically yes, by roughly the dividend amount on the ex-dividend date, all else equal.

Is a special dividend taxed differently?

In the US it is generally taxed like other dividends, as qualified or ordinary depending on the holding period and the company.