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At the Top, Pennies Per Share Add Up

Two tax seasons later, it appears both the proponents and opponents were right.

Since Bush began his dividend push in January 2003, "the level of total regular dividends has surged by approximately 20 percent," according to Raj Chetty and Emmanuel Saez, economists at the University of California at Berkeley. One-time special dividends also rose sharply, and companies accelerated a shift from offering employees stock options to offering special dividends.

A Corporate Boon Here are the companies with the largest increase in dividends to top executives in 2003.

At the same time, both the Chetty-Saez research and Brown's paper, co-authored by Federal Reserve Board economist Nellie Liang and University of Illinois economist Scott Weisbenner, found evidence that executives were buttering their own bread. Firms whose executives held only stock, instead of unvested stock options, were 20 percentage points more likely to have increased dividends after the tax cut passed, the Brown paper found.

"We find that about one-half of the unexpected rise in the likelihood of a dividend increase observed in 2003 can be attributed to the composition of holdings of the top five executives," the authors wrote in a paper posted on the National Bureau of Economic Research's Web site in December but still awaiting peer review.

Chetty and Saez, in a separate review, concluded, "Firms where top executives held more shares and fewer unexercised stock options were much more likely to initiate dividend payments, revealing the importance of top executives' self-interests in determining corporate responses to taxation."

In 2003, Microsoft's top five executives raked in $138 million from the company's first-ever dividend, according to the study by Brown. When Alabama communications equipment maker Adtran Inc. offered its first dividend in 2003, $28.2 million went to the company's chairman and chief executive, Mark C. Smith.

In 2004, similar windfalls fell to the top executives of lumber company Louisiana-Pacific Corp., Costco Wholesale Corp. and fast-food giant Yum Brands Inc., owner of Kentucky Fried Chicken, Pizza Hut and Taco Bell.

"The firms most likely to initiate dividends were firms where executives owned a whole lot of stock," Weisbenner said.

Companies that offered their first dividends in the wake of the tax cuts strongly deny any executive self-interest. But they do not deny the windfalls. Costco's two founders, chief executive James D. Sinegal and Chairman Jeffrey H. Brotman, were strong supporters of Bush's Democratic opponent in the 2004 presidential race, Sen. John F. Kerry (Mass.). Sinegal, in particular, spoke out strongly against the president's tax cuts, saying they unfairly benefited the rich.

But based on the company's most recent proxy statement, when Costco offered its first quarterly dividend a year ago, Brotman and Sinegal could have reaped nearly $2 million over the past four quarters. That would equal tax savings topping $470,000.

"We have two significant shareholders: the two founders of the company," said Costco's chief financial officer, Richard A. Galanti. "As a logical statement, that's correct" that they earned a windfall.

But Galanti said Costco offered its dividend because its cash income is outstripping its capital expenditures by $500 million and shareholders have been clamoring for the cash.

"I don't think it had much to do with changes in tax law," he said. "That was more an afterthought."

When Louisiana-Pacific declared a 10-cent quarterly dividend last year, it proved to be a generous parting gift for retiring chairman and chief executive Mark A. Suwyn. Company documents show he owns 972,685 shares, giving him $389,074 in dividends over the past year. But in July, the company's compensation committee decided to fully vest all of Suwyn's stock options, incentive shares and restricted shares "in anticipation of his retirement," taking a $10.7 million charge to finance the move. If he continued to own those shares, his dividend take would have exploded.

"It was a board determination," said Mary Cohn, a Louisiana-Pacific spokeswoman, strongly denying any link between the company's decisions and the tax cut. "I just don't see how you can make that connection."

None of those payouts could compare to the mountain of cash that Microsoft has pushed out its door since 2003. In July, the software giant announced it would ante up $32 billion for a one-time, $3-per-share special dividend and an additional $14 billion to double the regular dividend it had first declared a year before. That payout actually exceeded the tax refund of 2001 that President Bush says helped lift the nation from recession.

Already the richest man in the world, Microsoft Chairman Bill Gates didn't much need his $3 billion in dividends. He donated the money to the Bill and Melinda Gates Foundation.

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