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Wall Street just doesn't get
GRMN). In fact, they hate it -- Garmin has consistently sported a short interest ratio of 10.4 for the last year, a number that means it would take more than two weeks of nonstop buying just for short sellers to exit their bets against shares. And while Garmin can't directly control its share price, the company does have control over a different driver of returns: its dividend.
Currently, the GPS-maker pays out a 45-cent quarterly dividend that adds up t a 4.9% yield.
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Garmin makes global positioning devices for cars, boats, planes and fitness enthusiasts. While the firm's detractors have pointed to the commoditization of the consumer GPS device as a potential business-killer for Garmin, that investment thesis just hasn't played out. In fact, that exposure to all corners of the GPS market means that Garmin is able to pour R&D into big-ticket electronics (such as the $50,000 G1000 avionics suite for small planes) and then transition the tech to the more margin-sensitive consumer market.
As Garmin continues to generate massive growth in niche devices for outdoor and fitness users, the firm should be able to keep its engines spinning -- all while subsidizing the biggest development costs in its bigger-ticket product lines. Meanwhile, a debt-free balance sheet with around $3 billion in cash and investments means that this bargain name effectively trades for a 41% discount right now. As management looks to put some of that cash to good use, a dividend hike makes all the sense in the world.
To see all of this week's Rocket Stocks in action, check out
the Rocket Stocks portfolio at Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.