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Right now, one small company may be on the verge of a huge 22% special dividend. And I’d like to bring you up to speed on the details.
This week, Ennis Inc. (NYSE: EBF) announced that it had sold one of its divisions for $109 million in an all-cash transaction.
In the grand scheme of big-cap corporate America, $109 million is pocket change. In the grand scheme of Ennis Inc., $109 million is a big deal. The windfall equals nearly a quarter of the company’s $475 million market cap.
I actually have a history with Ennis. I owned its shares in the mid-1990s. Back then, Ennis Inc. was known as Ennis Business Forms (hence the EBF ticker symbol). Back then, Ennis also focused on one business, the business that reflected its name. Ennis was solely a printer and distributor of business forms through independent dealers.
Ennis has never been a growth company. It wasn’t a growth company 20 years ago; it isn’t a growth company today. But Ennis has always been a conservatively financed, sturdy company.
Uninterrupted Quarterly Dividends
Ennis retains those characteristics to this day: Debt is less than 20% of equity. The current ratio, the amount current assets exceed current liabilities, is 4.4. A current ratio over two is considered exceptional. Financial conservatism has allowed Ennis to pay an uninterrupted string of quarterly dividends for the past 30 years.
Ennis has always been a reliable dividend payer, but too predictable of one. The dividend has barely budged over the past 20 years. During my tenure, Ennis paid a $0.60 per-share annual dividend. Today, it pays a $0.68 per-share annual dividend. If my memory serves me correctly, the dividend provided a 5% yield on my investment. Today, the dividend provides a 3.9% yield.
But there is a significant difference between 2016 and 1996: Ennis’ dividend yield can potentially be ramped up in a very big way.
$109 Million Windfall
Subsequent to my stock sale, Ennis expanded into manufacturing and distributing active-wear. I never thought active-wear was a good fit for a business-printing company. Apparently management has come around to share my sentiment. The closing on the active-wear sale is the source of Ennis’ $109 million windfall.
The sale is good news for Ennis shareholders. For one, it allows the company to return to its bailiwick – business printing. More important, the sale allows Ennis to create additional shareholder value. Ennis has 26 million shares outstanding. Divide $109 million by 26 million and you get over $4 per share of cash proceeds.
Now, it’s up management to decide what to do with the cash proceeds. Here are the options under consideration, as stated in the press release announcing the active-wear sale: “…the Board may consider several options, such as paying down debt, additional share repurchases of our Company stock, and the return of capital to our stockholders in the form of a one-time special dividend.”
Exploit the Profit Potential
The last option – the special dividend – would be my first option. If management were to pay a $4 per-share special dividend, Ennis investors would see a huge 22% dividend payout based on Ennis’ $18 share price. What’s more, investors could capture an even higher return.
Few investors know this, but large special dividends can generate large returns that go beyond the immediate dividend payout. This is a unique insight that 1,000 investors learned this past Wednesday after attending a groundbreaking income event hosted by Ian Wyatt and me.
This situation presents a huge income opportunity.
Click here to get a full write-up with details on this exciting new investor strategy. You’ll learn how to exploit the huge profit potential with Ennis stock.