The Big Picture for the Week of December 9, 2012

In its ongoing effort to instill fear promote awareness of the fiscal cliff CNBC is making a big deal whenever a company announces some form of special dividend to allow shareholders to benefit from a preferential tax rate with the assumption that we will go over the cliff thus causing tax rates on dividends to go up meaningfully.

I am of the opinion that something will be pulled together such that the can gets kicked as opposed to actually solving anything which would buy the country a little time to try to figure something out. My expectation will either be right or not but if the cliff is averted or delayed then I wonder what the effect will be on these stocks that paid out those special dividends.

Yields on bonds will still stink in 2013, at least for most of the year. Given the desire for dividends, it would seem that the stocks that paid their 2013 dividends early, as some are doing, will get crushed. What is the point of holding a dividend stock that won't pay any dividends?

Zooming out a little I would be wary of a company that put tax concerns ahead of cash flow needs for executing the business plan. Taxes are important but not more so than the running of the company. In a very similar vein companies issuing debt to pay dividends would make me wary as well. A company can only issue so much debt and using that opportunity for something other than improving the company's fortunes seems very misguided.

The first picture is from Milford Sound, the second one is from the Franz Josef Glacier and the last one is my favorite fire brigade station of the many we took pictures of when we were on the South Island.