Seek and you shall find; if you don’t seek, you’re unlikely to find.

I refer specifically to special dividends. They’re not coming to you, you have to go to them. Most of the popular financial portals fail to include special dividends when presenting dividend data.

Special dividends are frequently worth seeking, especially recurring special dividends. These gems can generate annual income that can double or triple the dividend yield and payment of regular dividends.

The Buckle Dividend

Buckle Inc. (NYSE: BKE) is a ready example. Most financial portals tell you that this retailer of high-quality, on-trend apparel geared toward the younger crowd pays a $1 per-share annual dividend that yields 4.4%. True enough, if you consider only the regular dividend.

But over the past 10 years, Buckle has continually augmented the regular dividend with an annual special dividend. Buckle paid a $1 per-share special dividend in January. Buckle investors have actually received $2 in per-share dividends this year, not $1; thus, the Buckle dividend yield is not 4.4%, it’s 8.8%.

Buckle has a history of issuing special dividends two-to-three times the size of the annual regular dividend.

Buckle Dividends (Stated and Special)

 

Year Stated Dividend Per Share Special Dividend Per Share
2016 $1.00 $1.00
2015 $0.92 $3.76
2014 $0.88 $0.98
2013 $0.60 $0.0*
2012 $0.80 $4.50
2011 $0.80 $2.25
2010 $0.80 $2.30
2009 $0.80 $1.80
2008 $1.00 $2.95
2007 $0.85 $0.0
2006 $0.71 $3.00

            *The 2013 special dividend was brought forward due to impending tax law changes.

Buckle has distributed $22 per share in special dividends since 2006 – over a $1 billion in total. Keep in mind, Buckle generates $1.1 billion in annual revenue and sports a $1.1 billion market cap. Buckle isn’t an Apple (NASDAQ: AAPL) or a Microsoft (NASDAQ: MSFT), but on a per-share measure, Buckle has delivered far more cash to its investors than those two behemoths.

Recurring special dividends are nice, but they must be affordable. Buckle’s dividend policy is so remunerative because without fail its free-cash flow is so free flowing.

Over the past 12 months, Buckle generated $142 million in free-cash flow, or roughly $2.95 per share. (Free-cash flow is what’s left after the bills are paid.) Even after paying all those regular and special dividends, the cash account continually grows.

Buckle reported $207 million in cash and cash equivalents in the last reported quarter. In 2013, cash and cash equivalents stood at $144 million. Cash is at an all-time high despite so much of it being doled out as dividends.

Buckle’s latest special dividend, declared December 2015 and paid January 2016, equaled the regular annual dividend. I expect Buckle to declare another special dividend in early December, and I expect at least $1 per share.

Now, for the obvious question: If Buckle is such a prodigious cash cow and a bounteous dividend payer, why are its shares down 30% year to date?

A disconcerting sales trend is the answer. In fiscal-year 2015 (which ended in January 2015), revenue posted at $1.15 billion. Trailing 12-month revenue posted at $1.07 billion. In the latest reported quarter, revenue had dropped 10% year over year.

Value Pick or Value Trap?

This disconcerting trend conjures another obvious question: Is Buckle a high-yield value pick or a wealth-wrecking value trap?

I’ll side with value pick.

Contrary to popular perception, teenagers and young adults remain mall denizens. A recent William Blair survey indicates that teenagers and young adults have actually increased their mall visits this year to reverse a multi-year trend. Despite the depressed level of overall sales for mall retailers, the latest read on young-adult habits is an indicator that the mall model can evolve and survive.

I think Buckle’s business model can evolve and survive, as well. Buckle’s business roots dig down to 1948; it has endured and prospered through numerous fashion and consumer cycles.

As for the here-and-now, Buckle sets itself apart from the competition with a broad but shallow merchandise assortment (i.e. many styles but only a few sizes in each). This creates a sense of urgency that supports full-price sales. A constant in-flow of new items (Buckle ships daily to most stores) also encourages customers to shop often.

Superior inventory management further distinguishes Buckle from the competition. Buckle reduces markdowns by transferring slow-moving merchandise in one store to other stores where there is greater demand. Buckle’s e-commerce site, buckle.com, also serves as an effective clearance channel. Online sales increased 11.8% in fiscal-year 2016, to about $106 million, or 9.4% of net sales.

Buckle trades at less than 10 times next year’s EPS estimate of $2.40. The five-year average is 14. This suggests that Buckle shares have the potential to trade closer to $35 than $25. And if that potential occurs later than sooner, you could do worse than collect an 8.8% dividend yield while you wait.

Published by Wyatt Investment Research at