I’ve never met an investor who hates dividends.  After all, it’s like getting a profit share.  But when a company “cuts a melon,” investors jump for joy.

According to Investopedia.com, cutting a melon is when a company provides a substantial special dividend on top of the regular dividend.  A company typically does this because they have large cash holdings or had a particularly strong quarter.

One of the most famous melon cutters was Microsoft (MSFT).  On September 14, 2004, MSFT announced that they would not only double their dividend payment, but also pay out $32 billion to shareholders in the form of a special $3-per-share dividend.  This payout was so large that it ended up skewing the Commerce Department’s personal income figures for December that year.

To increase your chances of buying into a potential melon cutter, look for companies that already pay a dividend and have large cash holdings.  If the company is also going through a significant growth period, your odds are even better.

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