What a difference six days makes. The Walton family, which founded Wal-Mart, could save as much as $180 million in federal income taxes after the huge retailer announced on Monday that it would pay out its quarterly dividend on December 27 instead of January 2, as was scheduled.
The change will allow the family and other Wal-Mart shareholders to record the income this year, when the federal tax rate on dividends tops out at 15%.
Next year, if the Obama administration and Republicans are unable to reach a compromise, that rate is set to jump sharply to 39.6%. High earners will have to pay an additional 3.8% on most investment income to help pay for the new federal health care law, bringing the total possible tax bite to 43.4%.
Wal-Mart is the biggest company to accelerate its dividend payments this year in anticipation of higher taxes next year, following such manufacturing companies as Leggett & Platt and Myers Industries.
Even if a compromise is reached and taxes do not rise quite as high as scheduled next year, investors and companies of all sorts appear to be betting that tax rates will be higher next year.
Many companies are preparing for this by making special, one-time dividend payments to take advantage of the current low tax rates. Markit, a financial data firm, estimates that 109 public companies will issue special dividends in the fourth quarter, more than three times as many as have done so in most recent years.
Like several of the companies making these moves, Wal-Mart has board members who own a large portion of the company’s shares and who stand to benefit from the change. In Wal-Mart’s case, the Waltons own 48% of Wal-Mart’s stock, or 1.6 billion shares, and control three of the company’s 16 board seats. Steve Wynn, who owns about 10% of Wynn Resorts, is leading his company to issue a one-time dividend for $750 million this week.
Two recent studies, one done by Markit, found that companies where board members own a large percentage of the company’s shares have been more likely to make dividend maneuvers aimed at helping shareholders avoid higher taxes.
“Some people will say that this is the insiders looking out for their own interest, but on the other hand they are doing what’s good for shareholders because their interests are aligned with shareholders,” said Michelle Hanlon, a professor at the Massachusetts Institute of Technology who is the