If you want to double—or even triple—your dividend income overnight, there’s an easy way to do it: seek out companies that regularly pay special dividends.

Management usually announces these one-time payouts (which are always larger than regular quarterly dividends) after reporting a blowout quarter, or if they suddenly find themselves sitting on a ballooning cash pile.

[ad#Google Adsense 336×280-IA]And with S&P 500 firms holding onto a combined $2.1-trillion stash, special dividends are becoming a lot more common these days.

They can instantly turn a company with a ho-hum dividend yield into an income investor’s dream.

Microsoft (MSFT) famously paid out a $3.00 special dividend in November 2004 that amounted to $32 billion from its long-term money pile. It signaled the company’s shift from a growth stock to a dividend and income investment.

More recently, Costco Wholesale Corp. (COST) shoveled a $5 special dividend out the door in February 2015. That was in addition to its regular quarterly payout of $0.355 a share (which it has since boosted to $0.40).

Costco broke the news on January 30, about six weeks after rolling out quarterly results showing a balance sheet bulging with cash, to the tune of $7.64 billion, up $1.2 billion from a year earlier.

If you ignore the special dividend, the warehouse retailer currently yields 1.01%, which is hardly on anyone’s “hot dividend” radar. But throw in the $5 payout, and suddenly you have a stock yielding 4.1%, double the S&P 500 average.

This isn’t Costco’s first special dividend, either. Back in December 2012, it rewarded shareholders with an even bigger $7-a-share payout.

And retailer Nordstrom (JWN) declared a special dividend of $4.85 per share in October (for an annualized 6.8% yield) after the company sold its credit card portfolio to TD Bank (TD). Need to return cash to shareholders without getting them hooked on the juice? One special is a good way to go.

My Favorite Investing “Secret”

Here’s something else few investors know about special dividends: they’re almost entirely hidden from the public.

That’s because stock-quoting services like Google Finance and Yahoo! Finance see them as one-offs, and therefore don’t include them in their dividend-yield calculations.

Right now, for example, both sites show Costco’s current yield as 1.01%, not the 4.1% “actual” rate. That’s even true of companies that send out special dividends on a regular basis.

So how do you find them?

Most of these stocks have three things in common: 1) healthy balance sheets, with low (or no) debt and, yes, high cash balances; 2) strong free cash flow; and 3) high insider ownership—because special dividends offer an indirect way to reward top execs.

So can we expect another “January surprise” from Costco next month? A quick glance at its latest quarterly results suggests the answer is no. The company ended the latest quarter with cash and short-term investments of $6.2 billion, down $600 million since the last special dividend.

Costco’s profits have also been squeezed by the strong greenback (28% of its sales came from outside the US in 2014) and a recently ended credit card agreement with American Express Co. (AXP).

But there’s another far more consistent special-dividend payer I’m adding to my watch list now, and you should, too: heavy-duty truck maker PACCAR Inc. (PCAR).

PACCAR Turns a 2.1% Yield Into 5.2%

The company makes big rigs under the Peterbilt, Kenworth and DAF (in Europe) banners. It controls 28% of the US/Canadian market, along with a 15% share in Europe.

PACCAR boasts a “regular” dividend yield of 2.1%, the same as the S&P 500. But if you’ve been paying attention to PACCAR, you know that doesn’t represent its real payout. That’s because on December 8, the company said it would pay a special dividend of $1.40 a share on January 8, 2016. When you add that to its regular payout of $0.24 per quarter, you get a much higher 5.2% yield.

The reasons look a lot like Costco’s: third-quarter earnings that easily topped the Street’s expectations and a balance sheet boasting $3.53 billion in cash, up 19% from a year ago.

When it comes to special dividends, PACCAR pulls ahead of just about any other stock you’ll find: 2016 marks the sixth straight year it has lined investors’ pockets with an extra payout. And it’s increased the rate each time, with this latest payment 40% bigger than the $1.00 a share it paid in early 2015.

Here’s how that looks over the past five years, when you include increases to PACCAR’s regular dividend, which has doubled in that time:

 

To be sure, trucking is a cyclical business, and some forecasts are calling for a slowdown in big-rig sales in North America, the company’s biggest market, in 2016, after a big run-up following the recession. That’s a major reason why the stock is down more than 30% so far this year.

However, PACCAR stands to gain as the European recovery takes hold, driving truck demand higher. As well, the company’s parts business, which chipped in 23% of its third-quarter pre-tax profits, helps cushion PACCAR when truck sales drive off a cliff, as fleet operators buy more parts to keep their older rigs rolling longer.

The selloff has also delivered a bargain valuation: PACCAR’s forward P/E ratio is just 10.75—miles behind the S&P 500 at 17.4.

— Brett Owens

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Source: Contrarian Outlook