The largest dividends are hidden from most investors.
Finding what’s hidden could mean the difference between a 1.9% dividend from the average company in the S&P 500 . . .
And a dividend that yields 11.1%.
These large dividends aren’t exclusive to privileged private partnerships or hedge funds, either. They are available to you and me, if we know where to look.
Go here to access my LIVE webinar and I’ll show you my strategy for finding the largest dividends.
I can tell you where you won’t find these large dividends: You won’t find them on the popular financial websites.
Yahoo Finance and Google Finance both report Bob Evans Farms (NASDAQ: BOBE) pays a $1.36 per-share annual dividend. They’re not wrong, per se. Bob Evans Farms pays a $1.36 per-share annual dividend. That is, Bob Evans Farms pays a $1.36 per-share regular dividend.
Lost in the official reporting on regular dividends is the special dividend.
Bob Evans Farms declared a $7.50 per-share special dividend on May 1. The special dividend was five-and-a-half times the size of the regular dividend, offering an 11.1% yield compared to the 2% regular dividend.
To belabor the obvious, Bob Evans Farms investors received an immediate income windfall because of the special dividend. To belabor the obscure, they also received much more.
Special dividends can be a powerful signaling mechanism. Bob Evans Farms special dividend signaled better days ahead.
Bob Evans Farms had sold its low-growth, low-margin eponymous restaurant chain to Golden Gate Capital for $565 million earlier in the year. The restaurant business had dragged on revenue and earnings for years. Restaurant revenue dropped 1.9% year-over-year in fiscal-year 2017.
The frozen-entree business would be the focus going forward. This was the right cart to hitch the horses. The business showed growth and improving efficiency.
Revenue for the segment was up 2.2% for the 2017 fiscal year. This might seem insignificant, but thanks to improved efficiency, cost of goods sold were down eight percentage points. Operating earnings were up 77% year over year.
Growth would be enhanced by a timely acquisition. At the same time Bob Evans Farms declared its special dividend, it announced it had closed on a $115-million acquisition of Pineland Farms Potato Co.
The frozen-entree business recorded $387.6 million in revenue in fiscal-year 2017. Thanks to the Pineland Farms acquisition, revenue should hit $470 million at the end of fiscal-year 2018 (next April).
Bob Evans Farms had transitioned to growth without sacrificing the capital structure. The company was flush with cash after selling the restaurants. It maintained a healthy cash balance after issuing the special dividend and acquiring Pineland Farms Potato.
Bob Evans Farms was so flush with cash it also announced a $100 million share repurchase plan. As a result, shares outstanding could be reduced 6%-to-9% over the next 12 months.
By removing excess cash, management ensured returns on invested capital would remain high. The special dividend was a win-win for all involved.
The New Bob Evans . . . Bought for $1.5 Billion
We’ll never know what revenue and earnings growth could have been.
I wasn’t the only investor who saw nothing but winners. Post Foods saw a winner as well. Post Foods announced that it would buy Bob Evans Farms for $77 per share — roughly $1.5 billion — last month.
The Bob Evans Farms special dividend produced an 11.1% yield. It also created a trade that produced a 25.2% holding-period return for investors who bought Bob Evans Farms shares when the special dividend was declared.
Savvy income investors were able to buy the shares at around $67.50, collect the $7.50 per-share special dividend, and realize $9.50 in share-price appreciation. All the wealth creation occurred in less than six months.
Largest Dividends and the Right Dividends
The right special dividends (like Bob Evans Farms) offer immediate high-yield income. They also set the stage for future share-price appreciation.
But the “right” special dividends are the exception, not the rule. Most special dividends provide immediate high-yield income. Too often, though, the momentum soon fades like a sugar junkie’s high.
Don’t miss the next big 11.1% special dividend.
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