Special Dividend Discount Study (SDS)


Background of the Study:

-The special dividend discount study (SDDS) presents a new way of considering your Discount for Lack of Marketability (DLOM)

- The study proves the hypothesis that liquidity increases a company’s value and therefore the inverse should be true that illiquidity decreases a company’ value similarly

-The SDDS examines the relationship between special dividends and the change in company value to show how liquidity increases value and therefore illiquidity must decrease a company’s value

-The study demonstrates the relationship between the issuance of a special dividend and its subsequent impact on a company’s stock price over time to demonstrate investors value liquidity

-The SDDS shows how public company data on the impact of liquidity on a company’s value can be extrapolated and applied to a private company’s value

-This is an ongoing study and the data included in the file and statistical conclusions will be updated biannually as more data becomes available

-If you use this data in a report or presentation, you should give attribution to Mergershark.com in your references

-The SDDS study data is available for free download below

What is a Special Dividend (SD) and Special Dividend Key Terms:

-A SD is a non-recurring one-time distribution in the form of cash to shareholders separate from the regular cycle of dividends

-Most SDs are unusually larger than the other dividends paid to shareholders

-Most companies do not regularly issue SDs

-SD declaration date = date special dividend was publicly declared; if the dividend was declared after the stock market close at 4 p.m. the declaration date is that day for analysis purposes; if the dividend was declared while the stock market was open, we use the prior day as declaration date for analysis purposes

-Ex-dividend date = trading date which the dividend is not owed to a new buyer of the stock; shareholders on record are entitled to the special dividend

-Study’s initial measurement period = the change in the company’s stock price over the above two dates

The Special Dividend Discount Study (SDDS):

-Includes over 165 special dividends (SD) issued from 2010 to 2023

-SDs were obtained from press releases in the Wall Street JournalBarron’s, and other financial publications

-Examines how the issuance of the SD impacted the company’s stock price

-Considers how the impact of the issuance of the SD on the company’s stock price differs by market capitalization

-Examines the impact on company value of unexpected liquidity

-To be included the SDs had to be: paid in cash; non-recurring/one time; not part of a liquidation or sale of unit; and not foreseen or anticipated by the market

-SDs that were excluded from the study include the following: previously announced transactions; reoccurring in the same year; company has history of SDs; issued after sale of a division or investment and thus could be anticipated by investors; issued after unusually high earnings due to one-time items

1 Day Stock Price Changes:

-Theoretically the issuance of a SD should decrease a company’s share price by the dividend amount on the ex-dividend date

-The SDDS generally found a majority of companies had their 1 day stock price increase (although some decreased too)

-The median 1 day stock price change was an increase of 3.58% or 63% of the SD

1 Week Stock Price Changes:

-The median 1 week stock price change was an increase of 4.99% or 93% of the SD


The Stock Price change on the Ex-Dividend Day (after payment of the SD)

The average stock price change was 8.98%

The median stock price change was 6.99%

These changes occurred over a median SDDS time period of 13 days.

We next adjusted the results over the same time period to eliminate the impact of the overall stock market (using an S&P index). The mean and median figures were 8.20% and 6.33%.


Newly added features-based on our recent user feedback:

1. We have now added the stock price change for both the 30 and 60 day periods after the Ex-Dividend date.  This was done to see if the increase in stock price remained the same for a longer period of time. While the results showed a slight downward trend, they also show that there was a significant change in value even after these periods, post the Ex-Dividend date.

The Stock Price change 30 days after the Ex-Dividend Date was

Average stock price change was 7.50%

Median stock price change was 6.14%


The Stock Price change 60 days after the Ex-Dividend Date was

Average stock price change was 6.54%

Median stock price change was 4.68%


2. The presumed annual illiquidity discount using the 60 day data is 23.38% (after adjustment for stock market changes over this period using an S&P 500 index).

3. For all newer deals, we have begun adding the beta of the Company as another way to assess the change in price versus implied volatility of the Company.

This was just recently added to the study, so to date we have 46 examples.  The median beta was 1.01.


What Does the SD Study Show:

-The ability to pay a SD increases a company’s value

-Trading volumes typically increased significantly on the SD declaration day

-Higher trading volumes increase liquidity

-Investors value liquidity

-Liquidity creates value (whereas we know illiquidity decreases value)

-This is true for both publicly traded and privately held companies

Special Dividend Discount Study Conclusions:

-The issuance of a SDs “liquidity” generally created a “premium” to a company’s stock price

-We believe this shows a lack of liquidity would create a “discount” in a company’s value

-Declaration of a SD increases liquidity by increasing trading volume, as more investors are interested in capturing the dividend and obtaining and immediate return on investment

-It reinforces the concept that liquidity creates value and illiquidity decreases value

-We believe you can use the inverse of the SDDS results to extrapolate a private company illiquidity “discount”

-On average larger stock price increases post declaration of the SD were seen with companies with smaller market capitalizations

-On average smaller stock price increases post declaration of the SD were seen with companies with larger market capitalizations

-Bigger companies tend to have smaller changes in value, whereas smaller companies tend to have larger changes in value

-Most privately held companies tend to be smaller than the SDDS sample group and the discount applied to them for illiquidity should be larger

-The extrapolated median positive change in stock price post declaration of a SD for companies with a market capitalization of less than $50 million can be used as a baseline discount for illiquidity for many privately held companies

-The annualized discount results are similar to other DLOM studies, such as restricted stock studies, pre-IPO studies and LEAP stock studies that show illiquidity increases as size decreases

-SDSS is another tool that can be used for private company Lack of Marketability (liquidity) Discounts

-SDDS confirms what other discount studies show, but is based on actual stock market data