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CLEARWATER, Fla. (AP) — Shares of Nicholas Financial Inc. rose on Wednesday after the consumer finance company declared a special dividend of $2 per share to be paid late this month ahead of a potential January increase in dividend tax rates.
Nicholas Financial said it "may elect to forego future dividends" as a result of issuing the special dividend, which is far larger than its current quarterly payout.
The $2 per share dividend is in addition to a quarterly dividend of 12 cents per share which was paid on Dec. 6. The special dividend is to be paid Dec. 28 to shareholders of record as of Dec. 21.
Shares of the company, based in Clearwater, Fla., rose 65 cents, or about 4.9 percent, to $14 in opening trading. The stock has traded in a 52-week range of $11.30 to $14.41.
Nicholas Financial joins a growing number of companies moving up regular payouts or issuing a special end-of year dividends to protect investors from potentially higher taxes on dividend income starting in January. Since 2003 investors have paid a maximum 15 percent on dividend income. That historically low rate will expire in January unless Congress and President Barack Obama reach a compromise on taxes and government spending, and the rate could increase as part of any deal that's reached.
As it stands, dividends will be taxed as ordinary income in 2013, the same as wages, so rates will go up depending on which income bracket a taxpayer is in. For the highest earners, the dividend rate would jump to 43.4 percent.
Nicholas Financial Chairman and CEO Peter Vosotas said the special dividend represents "our effort to return capital to our shareholders in the most tax-efficient manner as possible. Our strong balance sheet and favorable access to the credit markets allow us to provide shareholders with this dividend while maintaining our conservative capital structure."
The company, which began issuing dividends in 2003, purchases auto loans made by dealers and handles the payments and record keeping. It operates branch locations in both the Southeastern and the Midwestern states. The company added its 64th branch this month in Troy, Mich.