optionsXpress: The Power of Large Special Dividends (OXPS)

optionsXpress Holdings, Inc. (NASDAQ: OXPS) is leveraging up a bit to reward shareholders with a one-time dividend while it knows taxes will be low.  The company’s board of directors has declared a special cash dividend of $4.50 per share, which comes  to approximately $259 million in payouts.

The dividend is payable on December 27, 2010 to shareholders of record on December 13, 2010, which will assure that the payout falls under the lower dividend tax rates for 2010.

The company has returned over $100 million to shareholders through buybacks and dividends since the beginning of 2008.  The company said that a current lack of immediate value-creating acquisition opportunities and the potential increase of dividend tax rates in 2011 were part of the reason behind the move.

Cash and investments for the period ended September 30, 2010 were approximately $269 million.  The leverage portion comes from it having secured a $120 million four-year variable rate term loan to cover a portion of the dividend payout with the remainder to be funded by available cash.  After taking into account the impact of the transactions, it would still have over $125 million in company cash and investments.

Shares closed Friday at $16.93 and its market cap is roughly $972 million.  The 52-week trading range is $13.85 to $18.23.  If you were using simple math, this special one-time dividend would equate to a 26.5% payout.

JON C. OGG