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The Ski Season and the Fiscal Cliff: Happy Holidays

Skiing and the fiscal cliff have never before been written about in PW Insight and I suppose are rarely uttered in the same breath. But both are topical, actually have lots in common and are certainly part of this year’s holiday rhetoric.

Snow Summit

Snow Summit in Big Bear, California
(Photo Credit: Flickr: Cary N)

 
I learned to ski relatively late in life — at 40 — when my wife could still say she was 30-something, my daughter just turned 10, and my son was nine.  Some friends took the family to Big Bear, a Southern California resort that is just so-so as far as skiing is concerned, but an easy drive from most parts of Los Angeles.
 
My pal, Tod Paris, a CFO by day and sadistic amateur ski instructor when on the slopes with adult beginners on the weekend, started me out on what he said was the least daunting hill.  “Pizza, pizza,” Tod screamed.  Skiers know that pizza has nothing to do with food.  I fell, bruised my ribs, hurt my right ankle. I was frightened and swore that I would never ski again.
 
My family, however, did well.  So my swearing aside, to keep up with them, I eventually engaged several real instructors, each of whom instilled their own styles and methods to keep me standing and allay my fears.
 
Fast forward 20+ years.  The ski season is about to get under way, and I am excited. When I look back, what seemed like the steepest, scariest slopes then do not look so bad today at all.
 
Likewise, could it be that all the fears about the looming fiscal cliff — metaphorically a double black diamond that is being talked about non-stop — also will dissipate?  Los Angeles Times journalist Doyle McManus in an editorial last week called the fiscal cliff merely a slope that in reality “may not be as alarming as it sounds.”
 
With the holidays just around the corner, some progress is being made, although few believe a final resolution will be reached before the end of the year.  Both sides of the political spectrum are offering their ideas, perhaps akin to ski instructors espousing various teaching methods, and both sides are talking about meeting “somewhere in the middle.”  (How ’bout at the Mid-Chalet Café?)
 
Let’s also not forget that the tax increases set for the first of the year can be delayed by Congress, or as McManus wrote, “… by a stroke of Timothy F. Geithner’s pen.” Federal spending cuts can be slowed down as well.
 
So while there will likely be some pain ahead, just as there is on those first runs every season even for experienced skiers, let’s keep our wits and our faith that those Washingtonians in charge will lead us down the path in the least hurtful way.
 
Happy Holidays.

 

— Roger Pondel, rpondel@pondel.com
 
 

Special Dividends in Vogue as Fiscal Cliff Looms

Many companies these days seem to be declaring special year-end dividends.  And the list of businesses doing so is growing like wildfire.
 
Ahead of an expected tax increase in 2013, public companies are doling out early holiday gifts to their shareholders.  The current 15 percent tax rate on dividends could increase to more than 43 percent next year for top wage earners, making special dividends especially attractive to companies and their shareholders.
 
Among the latest on the dividend bandwagon are Disney, which increased its usual year-end dividend by 25 percent, Las Vegas Sands Corp., which nearly doubled its usual year-end dividend, and Costco Wholesale Corp., which declared a $3 billion payout to shareholders.
 
According to Bloomberg, more than 70 companies in the Russell 3000 stock index have announced a one-time cash payment to shareholders since September.  This is up from only 15 businesses in the prior-year quarter.  More than a dozen of the 70 companies the wire service highlighted pegged their actions to pending tax increases, but it’s a good bet that many of the others had similar reasoning.  Investor’s Business Daily reported that as of November 28, 173 companies had announced special dividends in the month of November.  More payouts are expected to occur as we inch closer to the end of 2012.
 
And it’s not just new dividends that are being declared.  Wal-Mart moved the payment of its fourth-quarter dividend from January 2 to December 27, while H.J. Heinz Co. accelerated its payment as well.
 
Some believe these dividend payments could boost holiday retail sales.  Jason Ader, head of Ader Investment Management and a former Wall Street analyst, believes that dividend payments arriving prior to Christmas “may very well help Christmas sales, along with having a multiplier effect in terms of credit and borrowing.”
 
At least one investor, however, does not agree with the recent spate of announcements.  During a recent interview with NPR, Jim Paulsen of Wells Capital Management said that companies should be looking for ways to increase their growth prospects rather than “handing out gifts to shareholders.
 
As companies continue to jump on the proverbial bandwagon and contemplate whether to declare a special dividend, it’s important to remember that each organization’s circumstances are different, and not everyone may benefit from taking the leap.
 
In the interim, maybe we all can take a lesson from Wile E. Coyote.

 

 

Laurie Berman, lberman@pondel.com