In Time for Christmas

If Congress and the President are unable to reach agreement by December 31st, automatic spending cuts and tax increases for 2013 will kick in and likely send a weakened economy off the "fiscal cliff." Such an outcome is still disbelieved by commentators under the assumption that politicians may be partisan but not suicidal.

We're not as sure about the wisdom of politicians and their crafting of a last-minute compromise. One consolation of this sorry situation is that cash-rich companies can't assume that compromise will be reached either.

Goldman Sachs foresees a wave of special dividends before year-end.

Goldman cites a well-capitalized corporate America that’s flush with cash, with gross non-financial cash rising by 55% since 2007. The looming expiration of tax cuts implies that dividends will be taxed as ordinary income, meaning at a rate of up to 43.4% from today’s 15% level. With the rates set to rise, Goldman says it sees increased potential for liquidity events [i.e, special payouts to shareholders] ahead of the change.

This makes sense. Most companies do try to act in the best interests of their shareholders, which include the decision-makers in boardrooms and executives suites. If you're fortunate enough to hold some dividend-paying stocks, count on some extra cash in time for Christmas. © 2012 Stephen Yuen