What Are Special Dividends and Interim Dividends?

A special dividend is a one-off dividend paid separately from the regular dividend. It appears when earnings came in larger than expected, cash piled up from an asset sale, or there was a specific event.

As a representative case, Microsoft announced a special dividend of $3.00 per share (about $32.6 billion in total) in 2004 and paid it on December 2 that year. It was one of the largest one-off dividends in history. The key is that it's "one-off"—there's no guarantee the same scale comes the next year.

An interim dividend is a dividend paid partway through the accounting period, apart from the regular year-end settlement dividend. A company that does an annual year-end settlement dividend paying additionally on a half-year or quarterly basis falls here.

In Korea too, companies conducting half-year/quarterly dividends are increasing. Interim dividends provide cash flow to shareholders more often, but by that much they mean the company distributes profits instead of retaining them internally, so it should be viewed together with dividend capacity.

A special dividend is welcome news, but you should be mindful of two things.

First, it lacks continuity. If you inflate the dividend yield by treating a special dividend like a regular one, an illusion arises. Second, the ex-dividend effect is large. The bigger the dividend, the more the stock price can adjust by that much on the ex-dividend date. That is, even if you receive a special dividend, if the stock price falls by the dividend amount, the real gain is limited to the amount minus taxes and trading costs.