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Stock Strategist

Special Dividends May Not Be So Special

Don't get caught up in the hype surrounding a one-time payout.

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When  Microsoft (MSFT) announced its plan to pay a one-time "special" cash dividend of $3 per share, did you grab the phone and call your broker to put in a buy order? If so, you're not alone. The stock rose nearly 2% the day of the announcement on an astronomical volume of 200 million shares, compared with a 1.3% loss for the S&P 500 Index and a 2.2% loss for the Nasdaq.

This is not surprising. Typically, when a company announces a special dividend, its stock shoots up immediately as investors rush in to secure a quick payout. Those investors usually lose money, however.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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