What is So Special About a Special Dividend?

Andrew L. May
President and Chief Financial Officer

What is so special about a special dividend?  If you own shares of Truxton Corporation – and shame on you if you don’t – you got paid a regular dividend of $0.30 per share on March 25, but you also got a “Special” payment of $1.00 per share.  The same thing happened last year in February.  Many of our shareholders have owned their stock since the company was founded.  They paid $10 per share.  They’ve received $3.42 in dividends since the beginning of 2020 alone – not too shabby.

What makes those payments possible?  Truxton Trust has always emphasized profitability and returns on capital over “growth for growth’s sake”.  In 2020, we earned over 16% on our capital, accumulating equity above what was needed to provide a margin of safety for depositors given the size and nature of our bank. 

Why don’t we just make our regular dividend larger?  We’ve increased the regular dividend for nine consecutive years, but are reluctant to grow it very rapidly.  Tax rates change, credit conditions change, regulatory mandates change.  We hope never to cut our dividend since our shareholders depend on it.  So we pay special dividends when the capital base allows for it.

Why not dividend all the capital back to shareholders?  How much capital should a bank maintain and why?  A bank’s capital is the depositor’s security blanket.  If we experience loan losses, the shareholders “take the hit” until the capital is exhausted.  Truxton has never seen significant loan losses, but we always maintain capital equal to about 10% of our assets.  It is a safe way to operate, and it pleases our regulators.

Can we expect to receive another special dividend in the future?  You tell me!  What will corporate tax rates be in a year?  What will the Nashville economy look like?  What will the equity markets deliver? The point is this: Our ability to pay additional dividends is “fact dependent” and today we don’t yet know the facts. 

What else are you doing with capital to increase shareholder returns?  We keep costs low by avoiding branching, we grow loans to the best borrowers, we keep looking for more great families for whom to manage wealth. Exactly what we’ve done for the last 17 highly profitable years.