Big dividend yield accompanied with big investment return . . . what more could a dividend-income investor want?
I do mean BIG dividend yield. I discovered a 28.6% yield on a dividend-paying stock.
This past August, I discovered a mid-cap applied technology company. Its business is cybersecurity, systems engineering, large-scale agile software development, and data analytics. The U.S. government is its principal customer. Over 76% of this company’s annual revenue is generated through U.S. government contracts.
Business was good and was getting better. The company was drowning in cash. So, the company’s board of directors declared a special dividend to drain the excess. Specifically, it declared a $13.64-per-share special dividend.
I went to work. I had to determine whether the special dividend would create value or destroy it. My analysis pointed to the former.
This tech company was on the move. It had recently announced that it would combine its operations with another prominent government contractor. The combined entity would double the tech company’s size. At the same time, efficiency would improve thanks to $1.2 billion in cumulative cost savings. Margins would expand and even more cash would flow in.
My analysis pointed to cash flow that would support annual increases in the regular dividend. Concurrently, it pointed to a wealth-enhancing special dividend for the company and its shareholders.
Sufficient cash is required to run a business, but excess cash is a drag on returns on invested capital. Therefore, this company’s board did the right thing and declared a special dividend to ensure operations ran efficiently and to properly enrich shareholders.
Upon completing my analysis, I sent a buy alert to subscribers to our new dividend-investing service. Those who bought the company’s stock bought at price to lock in a 28.6% yield on the $13.64-per-share special dividend. What’s more, they were able to realize an even higher return than 28.6%.
Companies that pay large special dividends for the right reasons will frequently see their share price rise after the special dividend is declared. They will also see the share price continue to rise after the dividend is paid.
This was the case with this mid-cap tech company and its large special dividend. After the dividend was paid, the share price continued to rise. In fact, it continued to rise to a 52-week high.
When share-price appreciation and dividend yield are combined, investors realized a 29.2% total return during their holding period.
As for the holding period, we’re not talking years; we’re barely talking months. Investors realized a 29.2% total return in just over four months. Their equivalent annualized return was 103.5%.
This mid-cap tech company’s special dividend was exceptionally large, but it hasn’t been the only special-dividend payer that warranted a buy alert. Over the past nine months, I’ve issued buy alerts on special dividends that yielded 10.4%, 15.9%, 24%, and 28.2%. All were sold to lock in a significant profit, and all generated triple-digit equivalent annualized returns.
Over the past nine months, I’ve closed 10 large special special-dividend trades at a significant profit. I currently have five open special-dividend trades. Two of these trades paid special dividends that yielded 15.7% and 19.9%. I expect these open special-dividend trades to close at a significant profit as well.
You, too, can learn to profit from large special dividends. I’m hosting a free event today at 12 noon EDT. Click here to learn how you can collect 13%+ yields in one-day special-dividend payments.