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Wal-Mart moves up dividend to avoid "fiscal cliff'

A board shows stock prices for Walmart at the booth they are traded on the floor of the New York Stock Exchange, March 6, 2012. REUTERS/Bren
A board shows stock prices for Walmart at the booth they are traded on the floor of the New York Stock Exchange, March 6, 2012. REUTERS/Bren

By Jessica Wohl

(Reuters) - Wal-Mart Stores Inc on Monday became the biggest corporation yet to move its planned dividend into late December from early January to help shareholders avoid a looming jump in the tax rate due to the so-called fiscal cliff.

The shift by the world's largest retailer will give shareholders, including the family of founder Sam Walton, roughly $1.34 billion in total dividend payments taxed at the current rate.

Fiscal years for retailers typically end in late January, so their dividend payments often are timed differently from those of other types of companies. Exxon Mobil Corp , for instance, had already planned for payouts in December.

"There are complex fiscal and federal tax rate issues that may not be resolved in the next few weeks, despite the ongoing good faith negotiations between the administration and Congress to resolve details related to the fiscal cliff," Wal-Mart said in a statement.

"In light of this uncertainty, the board determined that moving our dividend payment up by a few days to 2012 was in the best interests of our shareholders."

Teen apparel chains Hot Topic Inc and The Buckle Inc already said they would move dividends typically paid in January into December to allow shareholders to benefit from the lower tax rate set to expire this year.

Adding to what has become a clamor for the White House and legislators on Capitol Hill to compromise, the Fitch ratings agency said on Monday that the "fiscal cliff" could trigger a recession and push the unemployment rate above 10 percent.

Fitch said it did not expect the tax hikes and spending cuts to occur. The investment firm Morgan Stanley Smith Barney also said in a market commentary on Monday that it thought Washington would "act to mitigate and delay" the cliff.

Robert Greifeld, chief executive of NASDAQ, the second-largest stock exchange, called on Democrats and Republicans to rediscover the ability to compromise and commit to a long-term plan to reduce the national debt.

Republicans must budge on tax increases and Democrats must give ground on spending cuts, Greifeld said in a Monday speech at the Brookings Institution, a Washington think-tank.

SPOTLIGHT ON DIVIDEND TAXES

Without action from Congress, the dividend tax rate will rise to the ordinary income tax rates, as high as 39.6 percent for top earners. Dividends are now taxed at 15 percent for the top four brackets and zero at the bottom.

In 2003, President George W. Bush and Congress cut taxes on capital gains and dividends, which mostly affect high-income taxpayers. These cuts are set to expire at the end of 2012.

President Barack Obama proposed raising dividend taxes back to ordinary income tax rates in his most recent budget, but many Washington insiders believe Democrats will settle on a rate of 20 percent if a deal is struck.

The Democratic-led Senate passed a bill this year extending the disputed Bush-era tax rates for the middle class and letting rates for the wealthiest taxpayers go up.

But within that legislation, Senate Democrats proposed a 20 percent dividend tax rate - not Obama's preferred higher rate. Add in the new investment tax from Obama's health care law, and dividend taxes would rise to 23.8 percent.

Dividend-paying companies including Altria Group Inc , AT&T Inc and Verizon Communications Inc are among those pressing lawmakers to avoid a tax hike, with executives and surrogates making frequent visits to Capitol Hill.

The family of Wal-Mart founder Sam Walton owns roughly half the company's shares and probably would pay much higher taxes on dividends paid after December 31 unless Congress takes action.

Two of Sam Walton's sons, Rob Walton and Jim Walton, are board members, and Chairman Rob Walton's son-in-law, Gregory Penner, is also on the board. The Waltons and Penner recused themselves from the board discussion and vote on the dividend date change, Wal-Mart said.

Rob Walton and Jim Walton are the 9th and 7th richest Americans, respectively, according to Forbes. Two other members of the Walton family are also listed in the top 10.

Wal-Mart's board approved changing the payment date of the quarterly dividend of 39.75 cents per share to December 27 from January 2. The record date associated with the payout remains December 7.

Shares of Wal-Mart rose almost 1.5 percent to close at $69.02 on the New York Stock Exchange.

(Reporting by Jessica Wohl in Chicago, additional reporting by Kim Dixon and Sara Lynch in Washington and Gabriel Debeneditti in New York; writing by Jessica Wohl and Patricia Zengerle; Editing by Lisa Von Ahn, John Wallace and Richard Chang)

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