Why? Because most investors were unaware this special dividend even existed. It wouldn’t have appeared on most stock screens; most major financial portals failed to note it in their dividend data.
That said, I knew that EMCORE Corp.’s (NASDAQ: EMKR) $1.50 per-share special dividend existed immediately after it was declared. Better yet, 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, with a market cap below $170 million. It designs and manufactures optical chips, components, subsystems, and systems for the broadband and specialty fiber optics market.
Over the past two years, EMCORE has transformed itself into a growth company centered on creating shareholder value. If management has been anything, it has been bold in the transformation.
In Dec. 2014, EMCORE sold its photovoltaics business for $150 million in cash. The division provided products for space power applications, including high-efficiency multi-junction solar cells, covered interconnect cells, and satellite solar panels.
Following this sale, EMCORE sold its digital products business for $17 million in cash and notes receivable in January 2015. The digital products business manufactured components for telecommunication companies.
Together, these two businesses generated two-thirds of EMCORE’s 2014 annual revenue.
After the sales of two major divisions, EMCORE was a much smaller company. It was more focused on its core competency – designing and manufacturing optical chips, components, subsystems, and systems for the broadband and specialty fiber optics market. Today, EMCORE is a leader in optical components for high-speed communications network infrastructures.
Sometimes smaller really is better. The divisions sold were lower margin than the businesses retained. Gross margins nearly doubled after the two divisions were sold, rising from 19% to 35%.
EMCORE has already seen significant strength in new orders this year. Management has guided for revenue to be up 10% to 14% in the third quarter compared to a year ago.
Special Dividend Rewards Shareholders
An uplift in the growth trajectory combined with a very rich cash account (and no debt) is difficult to ignore. When EMCORE’s special dividend was announced, the cash account stood at $110 million, or $4 per share. In other words, 70% of EMCORE’s market value was cash. This, after the company had already spent $45 million repurchasing outstanding shares.
I liked that management understood that EMCORE carried too much cash and that the cash accounted needed to be reduced. The following quote from EMCORE CEO Jeffrey Rittichier further solidified my support for the special dividend:
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 in order to maintain high returns future investments.
Click here to discover how to profit from these unique dividend situations.
A $1.50 per-share special dividend might appear significant in isolation, but compared to EMCORE’s share price, it was quite significant. EMCORE declared the dividend after the market close on July 6. The special dividend generated a 26.3% yield based on EMCORE’s July 6 closing price of $5.70.
Before the market opened on July 7, I sent an alert to my readers to buy EMCORE’s special dividend. Readers who followed my alert were able to buy EMCOREs shares for $6.25. They were able to secure a 24% return on their investment.
On the ex-dividend date, July 30, EMCORE shares opened at $5, but within three months, they were trading above $6.25, which prompted me to send a sell alert. Those who followed my sell alert were able to lock in a 24% return on their EMCORE investment in less than three months.
A Little-Known Opportunity
The right special dividends – and less than 20% of special dividends qualify – can generate high yields and high investment returns. Yet few investors know these special-dividend opportunities exist.
You can be one of the few. Join me Wednesday, Nov. 2 at 12 p.m. ET and learn to exploit these high-yield special-dividend opportunities during a free webinar.
Stephen Mauzy, CFA