A regular dividend is your steady paycheck. A special dividend is an unexpected bonus. Here is everything you need to know about both.
Regular Dividend
Special Dividend
A regular dividend is a recurring cash payment that a company distributes to shareholders from its earnings. Most US companies pay regular dividends quarterly (four times per year), though some pay monthly or semi-annually.
Key Characteristics:
A special dividend (also called an extra dividend or one-time dividend) is a non-recurring payment that is separate from the regular dividend schedule. Companies issue special dividends when they have accumulated excess cash they want to return to shareholders.
Common Triggers for Special Dividends:
Important Distinction
A special dividend is not a sign the company will start paying more regularly. It is a one-time event. Do not buy a stock expecting repeated special dividends. If you want reliable income, focus on companies with consistent regular dividend histories.
The serial special dividend payer
Costco is famous for issuing massive special dividends every few years when their cash reserves grow too large. They view it as returning excess capital to shareholders rather than making wasteful acquisitions.
If you owned 100 shares during the 2024 special dividend, you received $1,500 in a single payment -- on top of your regular quarterly dividends.
The largest special dividend in history
In November 2004, Microsoft paid a $3.00 per share special dividend, distributing approximately $32 billion to shareholders. At the time, it was the largest one-time dividend payment in history. Microsoft had accumulated over $60 billion in cash and decided returning it to shareholders was better than sitting on it.
Special dividends from strong earnings
Ford has occasionally paid special dividends during particularly strong profit years. In March 2023, Ford paid a $0.65 per share supplemental dividend on top of its regular quarterly payment, reflecting strong truck and SUV sales.
This pattern is common in cyclical industries like automotive and energy, where earnings fluctuate significantly from year to year.
Both types can be qualified or ordinary
The tax treatment for special dividends follows the same rules as regular dividends. Whether a dividend qualifies for the lower capital gains tax rate depends on how long you held the stock, not whether it is regular or special.
Qualified Rate (0%, 15%, or 20%)
You held the stock for more than 60 days during the 121-day period surrounding the ex-dividend date. This applies to both regular and special dividends from US companies and qualified foreign corporations.
Ordinary Rate (up to 37%)
You held the stock for fewer than 61 days, or the dividend comes from a REIT, MLP, or certain foreign companies. Taxed at your marginal income tax rate.
Special Consideration for Large Special Dividends:
If a special dividend equals 10% or more of the stock value, the IRS may extend the holding period requirement. The 61-day counter pauses during the ex-dividend period and resumes after. This prevents buying a stock solely to capture a large special dividend at the lower tax rate.
Get notified when major companies announce special dividends so you never miss a windfall
Companies with large and growing cash balances relative to their market cap are prime candidates. Check the balance sheet for cash and short-term investments. If cash exceeds 10-15% of market cap with no major acquisitions planned, a special dividend becomes more likely.
Companies like Apple, Alphabet, and Berkshire Hathaway sit on enormous cash piles, though they tend to prefer buybacks over special dividends.
When a company sells a major division, subsidiary, or real estate portfolio, the proceeds often get distributed as a special dividend. Monitor press releases from companies in your watchlist for announcements of divestitures or asset sales.
Some companies, like Costco, have an established pattern of paying special dividends every 2-3 years. While there is no guarantee, these patterns can help you anticipate future payments.
Other frequent special dividend payers include select REITs, family-controlled companies, and firms in industries with cyclical cash flows.
Special dividends are more common in the fourth quarter as companies assess their annual earnings and tax situations. Watch for announcements in October through December, especially when tax law changes are anticipated.
Announcement Day:
The stock typically rises by less than the dividend amount as investors buy in. The full dividend is not immediately priced in because of the time value and uncertainty until the ex-date.
Between Announcement and Ex-Date:
The stock may drift higher as more investors learn about the special dividend. Trading volume usually increases during this period.
Ex-Dividend Date:
The stock price drops by approximately the special dividend amount, just like with regular dividends. For a $10 special dividend, expect the stock to open about $10 lower. This can be dramatic for large special dividends.
After Payment:
The stock gradually recovers if the company remains fundamentally strong. Long-term shareholders are not harmed because they received the cash distribution.
Use our DRIP Calculator to model how reinvesting both regular and special dividends accelerates your portfolio growth.
Not necessarily. Regular dividends provide dependable income you can plan around. Special dividends are nice bonuses but you cannot rely on them. For income-focused investors, consistent regular dividends are more valuable. Think of regular dividends as your salary and special dividends as a year-end bonus.
Generally no. The stock price drops by the dividend amount on the ex-date, so you do not gain free money. If you did not already own the stock, buying solely for the special dividend is essentially a dividend capture trade, which rarely works out after taxes and the price adjustment.
It depends on the data provider. Some include special dividends in the trailing 12-month yield, which can make the yield look artificially high. Always check whether a reported yield includes one-time payments. If a stock shows an unusually high yield, it may include a special dividend that will not repeat.
Yes. Costco, for example, regularly increases its quarterly dividend while also paying periodic special dividends. The two are independent decisions. However, if a company pays a very large special dividend, it may have less cash available for future regular dividend increases.