Wednesday, November 21, 2012

This Should Convince You That The Fiscal Cliff Is Real

In what I consider a combination of gun and financial news, Sturm, Ruger & Company declared a special dividend of $4.50 per share. By contrast, their regular third quarter dividend was 38.2 cents. While CEO Michael Fifer says in the statement below that this special dividend will increase Ruger's return on shareholder's equity, I can't help but wonder if tax considerations also played a role in this.

Come January 1, 2013, there will be a new 3.8% Medicare tax on investment income including dividends for individuals with adjusted gross incomes over $200,000 and couples with adjusted gross incomes over $250,000. In addition, dividends for those in the 25 % or above tax brackets are currently taxed at 15% and nothing if one is in the 10 or 15% bracket. If Congress and the President do not come to an agreement and the Bush-era tax reductions revert to their old levels, dividends will be taxed at 10% for those in the 15% tax bracket and 20% in any bracket above that. Thus, some taxpayers could be seeing their dividends taxed as high as 23.8% or an almost 59% increase over current levels.

The takeaway is that the fiscal cliff is real, taxes do matter when it comes to investments, and that companies are taking it seriously. Now if only those within the Beltway were equally as serious.

Sturm, Ruger & Company, Inc. (NYSE: RGR) announced today that its Board of Directors voted to declare a special dividend of $4.50 per share on the Company's issued and outstanding shares of common stock. This cash dividend will be paid on December 21, 2012 to shareholders of record as of December 7, 2012.

Chief Executive Officer Michael O. Fifer commented on the special dividend, "The decision to return this cash to our shareholders was based on an analysis that indicates we can continue to fund our high rate of organic growth, including expected increases in both working capital and capital expenditures, and fund our quarterly dividend while still growing our cash reserves at a modest rate. In addition, the special dividend will substantially increase the Company's return on our shareholders' equity, as the equity will now more accurately reflect the net assets being used in the conduct of the business. Likewise, after the special dividend, our long-term investors will still own the same future stream of earnings, resulting in an increase to their return on investment."

Mr. Fifer concluded, "This special dividend reflects our confidence in the future to be able to pursue good opportunities that come our way. We remain committed to our new product development strategy and will continue to seek accretive acquisition opportunities and prudently expand our manufacturing capacity."


  1. Hey, nice spam! ^

    Anywho...I KNEW I should have sold all the garbage I had and bought Ruger the day after the election.

    Thanks for the break down on the upcoming brackets John.

    1. I had been meaning to get rid of that spam comment but I forgot about it.

      You should have bought Ruger on Election Day 2008 (11-4) when the closing price was $6.41 a share. Compare that to today's close of $54.57.

  2. Ruger's decision was probably influenced by the Cliff, but it is unlikely the sole (or even the largest) factor...