What’s the difference between a special and regular dividend?

Short answer: Intent. Long answer: Let’s start from the beginning. 

>  What is a dividend?  A dividend is just a distribution from a corporation to its shareholders. The distribution could be cash, property (like shares in another company), or stock (shares in the same company). Dividends are declared by the board of directors at their discretion. There are some other more exotic dividend types, but these three types cover 99.9% of what we’re going to see in our investing careers. 

>  Types of cash dividend:  Out of that group, cash dividends are the type that gets subdivided into “Regular” and “Special” types, since it is the most common way for corporations to distribute assets to shareholders. This is where the “intent” part of the short answer applies since there is no functional or legal difference between a Regular and Special dividend. They both are sourced from the same pool of cash, subject to the same declaration and distribution rules, and subject to the same tax treatments. “Regular” dividends are just those that the company wants us to consider to be part of a long-term dividend distribution plan, while “Special” dividends are usually more like one-off events.

>  The CNVRG dividend:  The P0.18/share Converge [CNVRG 16.96 ?0.1%; 81% avgVol] dividend was categorized by the company as “Special”. While CNVRG paired the declaration with a press release announcing a new dividend policy (25% to 30% of its annual net income), the implication here is that the P0.18/share dividend isn’t part of that policy. It’s not representative of 25% to 30% of its previous years audited net income (FY23 net income per share was P1.25, so a “Regular” dividend in accordance with this policy would have been between P0.31/share and P0.37/share), and it’s being declared too late to be representative of anything for FY24.

 

MB BOTTOM-LINE:  There’s no black-and-white rule to define what is a Special dividend as compared to a Regular one, but the custom and practice of companies on the PSE is to use the categorization as a way to set or adjust the expectations of investors. Is this something that investors should expect going forward, or is this more like a Special treat that is either a one-off or something in addition to the investors’ expectations of the company’s Regular dividend? If it’s the former,  it’s a Regular div. If it’s the latter, it’s a Special one. This was a great question, Jess. Thanks for asking!

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