Special dividends are one time cash payouts to shareholders. What this means is that when a company has extra cash on the books rather than reinvest it back into the company it will pay it out to shareholders on a one time basis.

Special dividends are also known as one-time dividends. They are payouts companies make to shareholders that are declared to be separate from regular dividends. They are typically one-off events and are thus not factored into a stock’s dividend yield.

These one-time dividends have become increasingly popular even among companies that do not pay a regular dividend. In tough economics times, like what we are experiencing currently, companies are looking to do something with excess capital. Instead of trying to expand their operations with risky capital investments they are instead choosing to distribute the profits to shareholders.

A company will usually pay out a special dividend after strong earnings as a way to reward long-term investors. However, there are times when special dividends are paid out when a company is trying to make changes to its financial structure. For instance, Iron Mountain ( IRM ) announced that it would pay out a special dividend as it plans to convert to a Real Estate Investment Trust.

These payouts are often quite large, usually much larger than normal dividend payouts. They can reach prices that represent 30% of a stock’s current price (i.e. a $10 stock may pay out a $3 special dividend). This is great for current shareholders. However, it is impossible to predict when a company will payout a special dividend. There are no set schedules or warnings signs that a one time dividend will be coming. If you own the stock and it decides to pay, great; that is an added benefit of being a shareholder.

Investors might be tempted to trade around, or capture, special dividends to take advantage of the high yields. However, the stock exchanges set complicated dividend dates in order to prevent traders from trying to take advantage of the dividend system. And as with all dividend payouts, the stock price will be negatively adjusted on the ex-dividend date to reflect the upcoming payout. Special dividends are strictly to reward long-term shareholders.

There is no way of knowing if a company is going to or will ever payout a special dividend. When investing in dividend stocks the typical factors like relative strength, overall dividend yield attractiveness, dividend reliability, dividend uptrend, and earnings growth should be taken into account to determine what course of action to take. The potential for special dividends is just an added bonus that a shareholder might see down the road.

Be sure to visit our complete recommended list of the Best Dividend Stocks . as well as a detailed explanation of our ratings system here .