What is an Accelerated Dividend?

An accelerated dividend is an amount of money paid by a company before a forecasted change in dividends occur. It is often a special dividend, a lump-sum cash payment that is paid when an adverse change is likely to occur, such as drastic change in dividend taxation. In some cases, companies use the accelerated dividend as a strategy to tell investors about the significant income of a company in order to enhance the growth of the organization. An accelerated dividend is paid prior to the occurrence of imminent change in how dividends are treated.

How Does an Accelerated Dividend Work?

The use of the accelerated dividend strategy by many companies in the United States became prominent in the last quarter of 2012. The total amount recorded as the lump-sum of money paid by companies as accelerated dividends as at that time was more than $31 billion. At this period, companies paid accelerated dividends ahead of a change in the treatment of dividends, especially with the expiration of the dividend taxation enacted in 2003 by the former president of the United States George W. Bush. The expiration of the preferential 15-percent dividend tax by 2013 posed a threat as it connotes that taxpayers would pay double of what they used to pay as dividend tax rates. About 228 companies announced accelerated dividends or special dividends towards the end of 2012.