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Fear Creates Early Dividends and Requires a List of Winners

January 15, 2013

The two houses of Congress and the President of the United States have amongst them sort-of solved a crisis that was itself the artificial creation of … the two houses of Congress and the President. They have negotiated a way off of the ‘fiscal cliff,’ while an onrushing debt-ceiling crisis now absorbs their attention instead, and while wise guys kick around the idea of a platinum coin as magical solution.

There will be plenty of time yet to discuss the consequences for asset managers, traditional and alternative, of that settlement. What we might do first is take note of who the long build-up, the long period of fraught hand-wringing negotiation, most enriched.

Threat to Dividend Income

During that period of negotiation, corporations in the U.S., and their investors, had to concern themselves with the possibility of a sharp increase in the extent to which their dividend income would be subject to taxation once the ball fell on the New Year 2013. The President’s plan in particular would have nearly tripled the tax rate for dividend income for families making more than $250,000 a year, from 15 percent to 43.4 percent.

Predictably, then, several companies (Las Vegas Sands, Oracle, Whole Foods among them) rushed dividend payments, getting them out to investors while Old Man 2012 and the lower tax rate still reigned.

Now, as it happens, the bill that passed the Senate on December 31 and the House on January 1 only included a quite modest increase in the taxation of dividends. For single filers with taxable incomes above $400,000, or couples with income over $450,000, dividend taxation increases from 15 percent to 20 percent.

But Wealth-X, a Singapore-headquartered firm that provides its members (global private banks, luxury brands, and so forth) with intelligence on ultra-high net worth individuals, has prepared a list of the top 10 recipients of the special dividends that this near-collision with a 43.4 percent rate produced.

The Top Three

Sheldon Adelson easily tops the list, receiving $1.2 billion. You’ll remember that Adelson attracted a good deal of attention during the recent US presidential campaign season as a free-spending supporter of the aspirations of former Speaker Newt Gingrich. However much he may have expended in that losing cause, this windfall may have left Adelson, chairman of the Las Vegas Sands Corp., somewhat consoled.

The second name on the list is Thomas Frist III. There is, though, a big gap between spots #1 and #2 – Frist received less than half of what Adelson did. Still, that leaves him with a special dividend take of $497 million.

Frist, one of the founders of Hospital Corporation of America, also has connections in politics. He is the brother of William (“Bill”) Frist, also a member of the HCA board. Bill Frist, a former U.S. Senator, served as the Majority Leader in that body from 2003 to 2007.

Third on the list of beneficiaries of the rush to pass out dividends before a feared increase in taxes is Lawrence Ellison, one of the founders of enterprise software giant Oracle. Oracle paid dividends for the second, third, and fourth quarters of 2013 on December 21, 2012 (record date, December 14) and Ellison owns more than a billion shares of that company’s stock.