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Meet the latest ASX stock to declare a special dividend

If there’s one thing that won’t be going out of fashion anytime soon, it’s a special dividend – and Jumbo Interactive Ltd (ASX: JIN) is the latest to reward shareholders with this special giveaway.

The online lottery company said it would pay a fully franked special dividend of 8 cents a share and the Jumbo Interactive share price defied the slump on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index to trade higher, although it later lost ground.

Nonetheless, it’s still holding up better than the market as the JIN share price slipped 0.3% to $16 compared to the 0.5% drop by the ASX 200 in after lunch trade.

Not a big surprise

But Jumbo Interactive’s special dividend wasn’t a big surprise and that could explain why it didn’t enjoy a stronger bounce. The company had paid a special dividend in the last two consecutive years and shareholders could smell another one in the air given the company’s strong balance sheet.

Management said it will have around $11 million in retained earnings and $10 million in franking credits after paying the special dividend – leaving Jumbo Interactive with enough firepower to undertake other capital management programs in the not too distant future.

“Cash reserves available following this special dividend will be in the region of $53 million for any potential acquisitions, expansion opportunities and/or a further special dividend in the future,” said the company in a statement.

The bigger dividend jackpot

Further, shareholders can expect an increase in the final dividend too when Jumbo Interactive reports its full year results in August. Management is guiding for a net profit of $24.2 million for FY19, and if the dividend policy of paying 85% of net profit is unchanged, this would imply a final dividend of around 18 cents per share.

The company doubled its interim dividend of 15 cents a share in February this year, and that means shareholders stand to collect 41 cents in total for FY19. This puts the yield at around 3.6% if franking credits are included.

It’s not quite enough to appeal to income investors although some might be happy to buy and hold given the big growth in Jumbo Interactive’s dividends over the last few years.

The “special dividend” club

Jumbo Interactive paid a final dividend of 11 cents a share in 2019 and it joins a long list of ASX companies in the “special dividend club”.

Companies that have declared a fully-franked special dividend recently include big miner BHP Group Ltd (ASX: BHP), banking and insurance group Suncorp Group Ltd (ASX: SUN), logistics company Qube Holdings Ltd (ASX: QUB) and conglomerate Wesfarmers Ltd (ASX: WES), just to name a few.

Company boards have been under pressure to distribute franking credits to shareholders as speculation mounts that the federal Labor opposition will win government later this month and change the rules to prevent the cash refund for franking.

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Brendon Lau owns shares of BHP Billiton Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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