Oracle headquarters in Redwood City, Calif.(Photo: Paul Sakuma, AP)
Oracle is speeding up the payment of three dividend payments
scheduled for 2013, the latest move by a company to avoid potentially
higher taxes on dividends starting next year.
The database and
business software company will be making its upcoming three dividends,
worth 18 cents a share in total, by the end of the calendar year. That's
a significant acceleration given that the payments were due to be paid
in January, April and July 2013.
Oracle joins several big
companies, including Costco and Wal-Mart, making either extra dividend
payments in 2012 or pushing 2013 payments into this year. The move could
save investors from paying higher tax rates on tens of millions of
dollars in dividends if tax rates rise next year, as some expect. Taxes
will return to 2000 levels if Congress doesn't come to an agreement by
Dec. 31, which means dividends would be taxed at an individual's regular
income tax rate.
During November, 228 companies announced plans
to pay special one-time dividends by the end of the year, says S&P
Capital IQ. That's up 217% from November 2011. "We're seeing an enormous
number of them," says Howard Silverblatt of S&P Capital IQ.
early payment is a big score for Oracle founder Larry Ellison, who is
the company's largest shareholder with 1.1 billion shares. The next
three dividend payments are worth $198.9 million for Ellison. The
company said Ellison had no say in the decision to move up the dividend
payment. But by moving up the payment, Ellison and all current Oracle
shareholders stand to benefit.
While the move may have saved
investors in taxes, the announcement was also a bit of a letdown,
because it means Oracle isn't planning to pay a special one-time
dividend, says Drake Johnstone of Davenport & Co.
company has $31.6 billion in cash and short-term investments, and its
0.7% dividend yield is below what other large companies are paying, some
might have liked to see a special payout. "It's not like they're paying
you any more," he says. "They're just accelerating what's to be paid
Many investors are busily prospecting for other
companies that might pay dividends early or make special payments. But
while there might be a one-time tax benefit from this, there's no real
long-term benefit for stock prices, says Jack Ablin of Harris Private
"It's a smart tax idea," he says. "But how this is better for the valuation of a stock, that's not adding up to me."