Zacks Investment Ideas feature highlights: Syntel, DSW, Caesars Entertainment
and Smith & Wesson
CHICAGO, Nov. 30, 2012
CHICAGO, Nov. 30, 2012 /PRNewswire/ --Today, Zacks Investment Ideas feature
highlights Features: Syntel (Nasdaq:SYNT), DSW Inc (NYSE:DSW), Caesars
Entertainment (Nasdaq:CZR) and Smith & Wesson (Nasdaq:SWHC).
The Next Special Dividend
The current rage in the world of investing is the special dividend. It's a
one-time event that is designed to reward shareholders with a larger than
normal payout. The reason for this is simple, the tax rate is going to change
in 2013, so companies are loading up on dividends now instead of the slow
trickle that investors are used to.
The strategy around the special dividend has as much to do with returning cash
to shareholders as it does with keeping the stock off a sellers hit list. With
changes to the capital gains tax rate coming next year, December is likely to
see a barrage of selling in stocks that have had significant year to date
increases. The thinking there is that investors will take the gain and pay a
lower tax rate in 2012 than they would in 2013. The special dividend is a tool
that some companies may use to deter that line of thinking, or even put the
EX-D date as close to the end of the year as possible.
Not A New Idea
The special dividend has been around for a long time... The most famous and
probably the biggest was the 2004 $3 payout by Microsoft. They had $69 billion
in cash on hand for a $32 billion special dividend of $3 per share. They also
enacted a buyback to bring the total return of capital to shareholders to $75
billion. Eight years later, the company has $66 billion in cash again.
I pulled a chart to gauge the interest of special dividends, and the peak was
reached in November 2004, when the Microsoft dividend was about to trade Ex-D.
The indexed chart has November 2012 at a 26 - well below the November 2004
Notable Special Dividends
Companies of all sizes have utilized the special dividend. Town Sports
International (CLUB) recently went EX-D on a $3 per share special dividend,
paying out $71.4 million. The company noted that it would borrow $60 million
to fund the payout. CLUB has a market capitalization of $232 million, so it is
a small cap. From the date of the announcement to the before the stock traded
without the dividend, the stock rose 5.3%.
A mid cap name that is also doing a special dividend is Dillard's (DDS). The
company declared a one-time cash dividend of $5 per share. The company will
pay the dividend to shareholders of record as of December 7, so the ex-D date
will be December 4. You will need to but the stock before the close of trading
on December 3 to get the dividend. The payout will be approximately $235
million. The company last reported cash on hand of $124 million, so a debt
offering of $150 million or more is likely in the works.
At $44 billion in market capitalization, Costco (COST) is a big cap. It too
joined the dividend parade with a $7 special dividend that will cost $3
billion. The $7 will be paid on the 18th of December to shareholders of record
at December 10. This means the stock will trade EX-D on the 7th, and will open
$7 lower than the close on Thursday, December 6th. As a result of the
borrowing that is to occur to raise the $3 billion, Fitch downgraded its
issuer rating to 'A+' from 'AA-'.
Those are three examples of companies that are the three major sizes of
stocks. I know that I used two retails names in there, but I liked the idea of
$3, $5, $7 - which used to be my favorite boutique in the mall.
I ran a screen on the Zacks Research Wizard for stocks that had a Zacks Rank
of #1 (Strong Buy) or #2 (Buy) and looked for high insider ownership. This
provided a lot of results, but more research was required. For instance, #1
Ranked World Wrestling Entertainment (WWE) sounded like a sure winner as the
chairman Vince McMahon holds a significant amount of stock, but a quick breeze
through a recent 10K showed that the McMahon family has an agreement that
gives them a smaller dividend, so a special dividend could be subject to the
That screen provided these candidates:
Syntel (Nasdaq:SYNT) - with a #1 Ranking, the company has 36% insider
ownership of 36%, institutional ownership of 34% and $10 of cash per share.
The company already pays a small dividend of $0.24 or 0.4% so a $2 to $4
special dividend from this low bed, cash rich business is a real possibility.
DSW Inc (NYSE:DSW) is benefitting from the hot trend in the footwear category,
and they came in with 51% insider ownership. With $7.57 in cash per share, the
company could easily afford to increase its $0.72 dividend to something much
more significant. DSW is a Zacks Rank #2 (Buy).
When I loosened the requirements to a #3 (Hold) Rank Caesars Entertainment
(Nasdaq:CZR) showed up. Several of its competitors have also done special
dividends and CZR has almost $9.50 in cash per share.
Two other names that I wanted to throw out there Interactive Brokers (IBKR)
and IAC/InterActiveCorp (IACI). Both are majority controlled by one person,
Thomas Peterffy for the brokerage company and Barry Diller for the internet
company. Peterffy is just coming off a failed election campaign to get
watchers of financial focused TV to vote republican, so adding some cash back
in his pocket to pay for those ads makes sense. Diller, on the other hand, may
be more interested in find another M&A transaction that going the dividend
route, but ultimately it is his decision.
Good Shooting ?
Strum Ruger (RGR) was one of the early names to announce the special dividend.
Its primary competitor Smith & Wesson (Nasdaq:SWHC) reports earnings on
December 6, and it could be the time to announce the special dividend. Since
the RGR announcement of a special dividend of $4.50, the stock is up nearly
20%. SWHC has $0.87 of cash per share.
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