First, you need to know where to look.
Most investors don’t know where to look. They don’t know where to find dividends that yield 10 times (or more) the market average. These dividends are frequently overlooked by the popular financial websites.
Second, you need to know if the stock of the company backing the dividend is worth buying. Many aren’t. The dividend is too frequently backed by a company with too much debt, too little cash, or too lousy business prospects.
But when you find the right company that pays a dividend that yields 10 times (or more), it’s worth a closer look and frequently an investment.
EMCORE Corp. (NASDAQ: EMKR) offers a ready example.
Few investors knew that EMCORE had a declared a $1.50 per-share dividend in July 2016. The EMCORE special dividend generated a 24% yield. The dividend failed to appear on most screening websites. It failed to appear in the dividend-yield calculation at Yahoo or Google.
I knew where to look. I scour the internet daily — using unique search terms and exclusive business websites — for large special dividends like EMCORE’s.
After some grunt-work analysis, I knew that EMCORE’s special dividend was worth collecting. I knew that it would enhance EMCORE’s value proposition.
EMCORE is a smaller company that designs and manufactures optical chips, components, subsystems, and systems for the broadband and fiber-optics market. EMCORE had transformed itself into a growth company centered on creating shareholder value. If management had been anything, it had been bold in the transformation.
After the sales of two major divisions, EMCORE was a much smaller company, but one more focused on its core competency. Gross margins nearly doubled, rising to 35% from 19%.
EMCORE was also cash flush. When the EMCORE special dividend was declared, the cash account stood at $110 million. Cash accounted for nearly 70% of EMCORE’s market value. It was too much.
EMCORE management understood that it carried too much cash. Management noted as much in the press release that accompanied the special-dividend declaration:
The return of cash to shareholders will strongly improve the return on assets of the business by reducing our overall capitalization, while maintaining flexibility to invest in new market opportunities to accelerate earnings growth.
EXACTLY! Too much cash is a drag on return on invested capital. Get the excess cash off the books to maintain high returns on future investments.
A $1.50 per-share special dividend might appear significant in isolation, but compared to EMCORE’s $6.25 share price, it was huge. The EMCORE special dividend generated a 24% yield — 10 times the yield of the S&P 500.
I acted and so did many of our readers. I sent an immediate alert and they were able to buy EMCORE shares to collect a dividend that generated a 24% return on their investment. EMCORE shares were sold three-and-a-half months later to lock in that 24% return.
I’ve unearthed 23 such special-dividend recommendations over the past 18 months. Some generated a yield lower than EMCORE’s. Some generated a higher yield — a much higher yield.
My latest special-dividend find — unearthed earlier this month — generated a 41% yield on investment. That’s more than 20 times the dividend yield of the S&P 500.
The right large special dividends, like the EMCORE special dividend, offer immediate high-yield income. They also set the stage for future share-price appreciation.
But the “right” large dividends are the exception, not the rule. Most large special dividends provide immediate high-yield income, but they fail to set the stage for future share-price appreciation.
Let me set the stage for successfully investing in these large special-dividend stocks.
Ian Wyatt and I will host a free live event today at 12 p.m. ET. You’ll learn how to find and trade the right large special dividends for income and profit.
Click HERE now to register. You have nothing to lose except the opportunity to invest in dividend stocks as you never have before.