A foreign gaming company declared $9.40 in liberty checks on its NASDAQ- traded American depositary shares (which trade like ordinary common shares). The “checks” were declared before the market open on April 5.
A $10,000 investment enabled investors to claim $3,263 in immediate income.
The yield on investment these “liberty checks” offer is as attractive today as it was three weeks ago. The “checks” generate a 32% yield on investment as I write. That’s 10 times the dividend yield generated by most blue-chip dividend stocks.
The “liberty checks” are worth claiming.
Chinese Company in Online Gaming
This company behind the “liberty checks” is a leading provider of online gaming services in China. It’s established in the United States. Its shares have traded on the NASDAQ Stock Exchange since 2009.
The company operates a high-margin business. Its gross margin exceeds 70% and net margin exceeds 18%.
The business generates plenty of cash. Cash and cash equivalents have more-than doubled since 2014. The company held cash and cash equivalents of $975 million at the end of 2017.
The liberty checks will consume $500 million of cash and cash equivalents. This still leaves the cash and cash-equivalent balance higher than at the end of 2014.
In other words, the checks are affordable. They enhance the value proposition. They offer a profitable trading opportunity.
The company has a history of paying liberty checks. It paid $3.80 per share in liberty checks in 2012. The liberty checks generated an 18% income yield on investment at the time.
The liberty checks issued five years ago were wealth-enhancing. Investors would have claimed immediate high-yield income. They would have captured additional share-price appreciation.
Corporations – foreign and domestic – are swamped with cash. The plight is enviable. Nevertheless, too much of a good thing is still too much.
In other words, too much of a good thing – even cash – is really a bad thing. Excess cash is unproductive. It tempts management to pursue value-destroying acquisitions or sub-par capital investments.
Share buybacks offer one outlet to drain excess cash. It’s an unappealing one. The bull market has run nonstop since March 2009. Many companies see their shares priced at the upper echelon of historical value.
Liberty Checks: Best Option
Prudent company managers know returning excess cash to shareholders is the best use of excess cash. Shareholders, the rightful business owners, are enriched; the company maintains high returns on invested capital.
Thus, distributing “liberty checks” is the best option for many companies in the current environment. I expect more “liberty check” declarations as the year progresses.
If you are an income investor, you’ll want to claim your share of these checks. We’re talking big income and a big bang for the buck.
The online-gaming company will pay liberty checks that offer a 32.6% yield on investment. That’s not the limit, though.
One coal-producing company paid checks that offered a yield on investment of more than 41%.
A $10,000 investment in that company would have enabled you to claim $4,103 in checks. What’s more, it would have enabled you to capture more share-price appreciation.
Eight companies have declared liberty checks this year. Income yields on investment range from 5% to 33%.