Special Dividend Discount Study (SDS)
Special Dividend Discount Study (SDS)
Background of the Study:
-The special dividend discount study (SDS) provides another source of information for your Discount for Lack of Marketability (DLOM)
- The study demonstrates that unforeseen liquidity increases a company’s value and therefore the inverse should be true that unexpected illiquidity decreases a company’ value, similarly
-The SDS examines the relationship between special dividends and the change in a Company value
-The study demonstrates the relationship between the issuance of a special dividend and its subsequent impact on a company’s stock price over time to demonstrate investors value liquidity
-This is an ongoing study and the data included in the file attached and statistical conclusions will be updated periodically as more data becomes available
-If you use this data in a valuation or other report or presentation, you should give attribution to Mergershark.com in your references
-The SDS study data is available for FREE download below
What is a Special Dividend (SD) and Special Dividend Key Terms:
-A SD is a non-recurring one-time distribution in the form of cash to shareholders separate from the regular cycle of dividends
-Most SDs are unusually larger than the other dividends paid to shareholders
-Most companies do not regularly issue SDs
-SD declaration date - The date the special dividend was publicly declared; if the dividend was declared after the stock market close at 4 p.m. the declaration date is that day for analysis purposes; if the dividend was declared while the stock market was open, we use the prior day as declaration date for analysis purposes
-Ex-dividend date – The trading date which the dividend is not owed to a new buyer of the stock; the date shareholders on record are entitled to the special dividend
-Study’s measurement periods - The change in the company’s stock price over the pre-SD day, versus the 1, 30 and 60 day ex-dividend stock price, as adjusted for the changes in the Standard & Poors TM (S&P) 500 Index.
The Special Dividend Discount Study (SDS):
-Includes over 210 special dividends (SD) issued from 2010 to 2025
-SDs were obtained from press releases in the Wall Street Journal, Barron’s, and other financial publications
-Considers how the impact of the issuance of the SD on the company’s stock price differs by market capitalization
-Examines the impact on company value of unexpected liquidity
-To be included the SDs had to be: paid in cash; non-recurring/one time; not part of a liquidation or sale of unit; merger or acquisition and not foreseen or anticipated by the market
-SDs that were excluded from the study include the following: previously announced transactions; reoccurring SD’s in the same year; companies with a history of SD’s; issued after the sale of a division or investment and thus could be anticipated by investors; issued after unusually high earnings due to one-time items
Special Dividend Discount Study Conclusions:
-The ability to pay a SD increases a company’s value (i.e. liquidity creates value)
-Trading volumes typically increased significantly on the SD declaration day
-Higher trading volumes increase liquidity
-On average, larger stock price increases post declaration of the SD were seen with companies with smaller market capitalizations
-On average, smaller stock price increases post declaration of the SD were seen with companies with larger market capitalizations
-Investors value liquidity
-Most privately held companies business valuation experts value tend to be smaller than the SDS sample group and the discount applied to them for illiquidity should be larger
-The extrapolated median positive change in stock price post declaration of a SD for companies with a market capitalization of less than $50 million can be used as a baseline discount for illiquidity for many privately held companies
-The annualized discount results are similar to other DLOM studies, such as restricted stock studies, pre-IPO studies and LEAP stock studies that show illiquidity increases as size decreases
-SDS confirms what other discount studies show, but is based on actual stock market data
