Companies Gifting Shareholders Ahead of Tax-Law Change

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Companies are also tapping the debt market to fund dividends and share repurchases.

Christopher Reich of Thomson Reuters IFR points out, for instance, that Murphy Oil in its prospectus Tuesday said that it would use the proceeds of its more than $600 million offering of 5-year, 10-year and 30-year bonds to fund its previously announced special dividend, among other things.

Corporate America has been issuing debt at a near record clip this month, surpassing $100 billion Tuesday, making it the busiest November ever and on track to possibly be the busiest month of 2012, according to IFR.

"I think what you're seeing is a reaction to the lack of clarity around the tax laws, and that's what Treasurers and CFOs are doing," said Joel Levington, managing director of corporate credit at Brookfield Investment Management.

Companies are using debt to fund payouts for different reasons. "I think what you're seeing is there's largely a mismatch with significant cash balances that are overseas. Companies won't repatriate that money given the tax implications. While there is cash there it's not really useable for a dividend or share repurchase," he said.

The other trade investors are making ahead of a pending dividend tax hike is the sale of dividend paying stocks. But McDonald said that trade may reverse, as the Fed's next meeting approaches, and it is likely the Fed will beef up its quantitative easing program by extending asset purchases to include the Treasurys it was buying in Operation Twist. Operation Twist expires at the end of the year, and the Fed had been selling shorter duration securities as it bought longer dated Treasurys.

"You could get a situation where QE comes in, and people rush back to dividends again," McDonald said.

Follow Patti Domm on Twitter: @pattidomm

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