March enters like a lion only to leave like a lamb, so we’ve been told. I can’t say for sure how March will leave this year, but I know that it entered like a lion for some of our special-dividend investors.
I refer to our special dividend investors who took advantage of Tribune Media’s (NYSE: TRCO) $5.77-per-share special dividend declared on Jan. 2. My analysis showed that Tribune’s special dividend was worth buying, so before the market open on Jan. 3, I sent a buy alert on Tribune shares. Investors who bought on the alert were able to secure a 15.9% dividend yield on their investment.
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Tribune’s special dividend was worth buying because the business supported the special dividend. The special dividend portended better days to come.
If you think Tribune Media you likely think of Chicago . . . Willis Tower (still referred to as Sears Tower), Lake Michigan, Wrigley Field. Tribune Media’s namesake newspaper, the Chicago Tribune, surely comes to mind.
Behind the Tribune Media Name
But who is interested in owning a newspaper? Certainly not me. And certainly not Tribune Media, which jettisoned its newspaper business, including the Chicago Tribune, a few years. Today, Tribune Media is nothing about newspapers and a lot about real estate and television and entertainment.
On real estate, Tribune Media owns 63 properties valued at nearly a billion dollars.
The real estate business is a good business, but it’s not Tribune’s forte. Tribune’s goal is to distance itself from physical real estate and monetize these assets through timely sales. The goal is to turn $1 billion worth of real estate into $1 billion worth of cash.
Tribune is progressing on its goal.
In late August, it sold the iconic Tribune Tower in Chicago and the Los Angeles Times Square in Los Angeles for net proceeds of $200 million and $102 million, respectively. The sales helped swell Tribune’s cash account to $578 million by the end of 2016 compared with $248 million in 2015. The cash proceeds from the real estate sales alone easily covered the $5.77-per-share special dividend.
Continuing real estate sales mean television and entertainment further dominate Tribune’s business portfolio. This is a good thing.
Television and entertainment is the engine powering the empire. It is by far Tribune’s largest business, generating $1.9 billion, or 97%, of the $1.95 billion in total revenue generated in 2016. What’s more, the business continues to grow: T&E revenue rose 9% for the year. T&E’s EBITDA, a cash-flow measure, rose 18%.
Tribune’s management implemented strategies to enhance shareholder value last year, starting with a $400 million share-buyback program. In the fourth quarter, management initiated a regular quarterly dividend, paid at $0.25 per share. At the same time, the capital structure was fortified by reducing long-term debt.
The special dividend is, of course, another key driver of shareholder value. The smart move is to always return excess cash and deliver it to its rightful owners — the shareholders. Tribune’s special dividend not only provided a windfall, it helped ensure that higher returns on invested capital are maintained.
It surely helped ensure a high return for our dividend-income investors. They realized a 15.6% return on their investment. But their Tribune holding period was only 58 days. Their equivalent annualized return was 100.1%.
Special-Dividend Investors Reap Rewards
More investment return was to follow. Before Tribune’s ex-dividend date, Jan. 11, I sent another buy alert. This alert advised our capital-gains investors to buy Tribune shares near the market open after the share price had been adjusted lower by the special dividend.
On March 1, both Tribune special dividend trades — dividend-income and capital-gains — were closed, and both were closed at a profit.
As for our capital-gains investors, they realized a 21.2% holding-period return. Their holding period was 50 days. Their equivalent annualized return was 154.8%.
Yes, March entered like a lion for our special-dividend investors. Given the price trend in a few of our other special-dividend recommendations, March could easily leave like a lion as well.
Next week, I’ll share my unique special-dividend-investment strategies in a free event. I’ll share a detailed explanation of actual special-dividend trades. I’ll also share two prospective companies that could issue one-day special dividends that yield 5% or more.