NEW YORK (
) -- Special dividends are attractive to
companies with cash to spare
and high levels of inside ownership, and
has identified ten stocks with strong potential to take the plunge in 2010.
A heavy insider presence is a factor right now because these payments represent a last chance to pocket some cash while paying a maximum of 15% in federal taxes. The 15% cap on taxation of dividend income -- part of the Bush Administration's set of tax cuts in 2003 -- is set to expire at the end of the year, and it would seem Congress has bigger fish to fry, such as the Gulf oil spill and
, at the moment.
Using data supplied by FINVIZ.com, we narrowed down U.S. stocks traded on the New York Stock Exchange, American Stock Exchange or NASDAQ, using the following criteria:
Three-month average trading volume over 100,000 shares.
Insider ownership greater than 20%.
Positive dividend yield.
Debt to equity ratio under 0.5.
Quick ratio above 1.5.
The quick ratio is a company's cash, marketable securities and receivables, divided by its total liabilities.
We then pared the list down further, to the following ten stocks with the strongest
Diamond Offshore Drilling
is something of a poster company for the special dividend, as it's adopted a policy of considering such payments each quarter in addition to its quarterly dividend of 12.5 cents a share, and has subsequently done so in each quarter for the past two years, but it was excluded from this list because too few shares are held by insiders.
( IDC) would have topped our list, but the company announced a deal to be acquired by private equity funds managed by Silver Lake and Warburg Pincus for a cash consideration of $33.86 per share on May 4. The deal is not subject to a vote, because
controls more than 60% of Interactive Data's shares and has already approved the deal.
While having excess cash is a wonderful thing, it's important to consider a company's longer term prospects as well. Investors with short-term horizons need to remember that -- all things being equal -- the special dividend "comes out of the share price" on the
. That's the date on which you need to be an investor of record to be eligible to receive the dividend.
These ten Buy-Rated stocks have above-average special dividend potential...
is headquartered in Fremont, Calif. and provides offshore IT and operations outsourcing services, with most of its business concentrated in North America. The stock is rated a B (Good) by
While iGate's revenue declined during 2009 amid cuts in spending among its financial services customers, top-line revenue for the first quarter of 2010 was $57.9 million, increasing 29% year-over-year. Net income for the first quarter was $11.6 million compared to $5 million a year earlier.
iGate's regular annual dividend is 11 cents a share, which translates to a yield of 0.90%, based on Friday's closing price of $12.25.
Jefferies & Company analyst Joseph Vafi initiated his firm's coverage of iGate on May 3 with a "Buy" rating and a 12-month target of $15, saying the company was trading at "a meaningful discount to offshore peers" based on 2011 earnings estimates. As of Friday's close, the stock had pulled back 7% since Vafi's report was published, although it was up 24% year-to-date.
The Buckle, Inc.
, based in Kearney, Neb., sells casual clothing for young men and women with 408 stores located across 41 states. The stock is rated a B (Good) by
On May 20, the company reported first-quarter net income of $30.1 million, or 65 cents a share, beating the average estimate of analysts polled by
for earnings of 61 cents a share. With its focus on premium denim products for teens,
has been one of the stronger retailers during the recession.
The Buckle has been paying a quarterly dividend of 20 cents a share since the third quarter of 2008. That equates to a yield of 2.43% based on Friday's closing price of $32.92. This is the highest regular dividend yield among this group of ten stocks. The company already has a track record for special dividends, making one-time payments of $1.80 and $2 per share in the third quarters of 2009 and 2008, respectively.
Elizabeth Pierce, an analyst with Roth Capital Partners, rates the company a "Buy," with a twelve month target of $43, saying "key drivers include store openings in underpenetrated markets such as the Northeast." Pierce's target price would be a 31% increase from Friday's close.
is based in San Jose, Calif. and operates as Micrel Semiconductor, manufacturing and marketing integrated circuits, including analog and power semiconductors, Ethernet switch and physical layer transceiver circuits. The stock is rated a B (Good) by
The company reported first-quarter net income of $9.7 million, or 16 cents a share, for the first quarter, a six-fold increase over the first quarter of 2009, when Micrel was suffering the effects of a major decline in IT spending amid the economic crisis.
Micrel pays a regular quarterly dividend of 3.5 cents a share, good for a yield of 1.33% based on Friday's closing price of $10.49.
Thomas Weisel Partners analyst Tore Svanberg rates the shares "Overweight," roughly the equivalent of a "Buy" rating, saying: "Micrel's bookings momentum remains healthy, especially for new products." Svanberg's 12-month price target for the shares is $16, which would represent 53% appreciation from Friday's close.
is a short-to-medium haul trucking firm headquartered in North Liberty, Iowa. The stock is rated a B (Good) by
Heartland Express reported first-quarter net income of $11.9 million, or 13 cents a share, down 16% from a year earlier, as the company experienced expense increases from property and equipment disposal and depreciation on new tractors purchased during 2009. Heartland attributed its flat operating revenue to lower freight demand and pricing pressures, but also said demand was increasing at quarter-end.
The company's regular quarterly dividend is two cents a share, for a yield of 0.53%, which is the lowest regular dividend yield among this group of ten stocks. Heartland paid a special dividend of $2 per share in May 2007.
Shares closed at $15.11 Friday, pulling back 13% since Deutsche Bank analyst Justin Yagerman downgraded the shares from "Buy" to "Hold" on April 22. At that time, Yagerman said valuations were a bit high, as improvements had already been "priced into" Heartland's shares, and that better entry opportunities might arise. The market seems now to have presented that opportunity. Yagerman also said his firm continues "to like HTLD's long-term prospects as the company typically generates strong free cash flow and earnings growth independent of the economy."
is a manufacturer of passive electronic components, headquartered in Fountain Inn, S.C. The stock is rated a B (Good) by
AVX reported net income of $46.5 million or 27 cents a share, for its fiscal 2009 fourth quarter ended on March 31, edging Wall Street's average analysts' estimate by a penny. In the same period a year earlier, the company had reported a net loss of $1.8 million, reflecting special environmental and restructuring charges. Revenue rose 35% year-over-year to $367 million in the latest quarter, a performance that CEO John Gilbertson attributed to "improvement in demand levels as well as inventory replenishment in most markets."
After paying quarterly dividends of 4 cents a share over the previous three years, AVX increased its quarterly payout to 4.5 cents a share on June 2. That puts the yield at around 1.35%, based on Friday's closing price of $13.36. The company had no debt at the end of March.
Matthew Sheerin of Thomas Weisel Partners has a "Neutral" rating on the shares. With the company appearing to fire on all cylinders and having $5.36 in cash per share as of March 31, Sheerin's trepidation centers on a possible correction in market demand. He says that "if orders improved much more from here, we believe the capacitor maker would likely have trouble filling them."
Not a bad problem to have, but the shares have pulled back 13% since the Thomas Weisel report was published on April 26.
of St. Paul, Minn. distributes supplies to dental, veterinary services and rehabilitation providers in the U.S. and Canada. The stock is rated a B (Good) by
Patterson reported $61.8 million in net income, or 52 cents a share, for its fiscal fourth quarter ended on April 24. Earnings rose 15% from a year earlier, as the company saw revenue improvement in its technical services business, including parts and labor, software support and improved demand for artificial teeth.
The company initiated a 10-cent quarterly dividend on March 16, which would be a yield of 1.37% based on Friday's closing price of $29.12. Before initiating the dividend, Patterson was actively repurchasing shares, spending $636 million to buy back 18 million shares during fiscal 2008.
In a report describing the results as "Fang-tastic!," Bank of America Merrill Lynch analyst Robert Willoughby said his firm expects Patterson "to generate $1.1 billion in free cash flow over the next five years, net of only $125 million in capital expenditures." While the company's recent history of share buybacks and the new quarterly payout make it appear unlikely that a special dividend will be paid, stranger things have happened.
Willoughby has a "Buy" rating on the shares with a $37 twelve-month price target, which would be a 27% return from Friday's close.
is a regional air carrier, flying passengers from smaller cities that have little service from other airlines, to leisure destinations including Las Vegas, Phoenix, Ariz., and Orlando, Fla. The company is headquartered in Las Vegas and the stock is rated a B-plus (Good) by
First-quarter net income was $22.6 million, or $1.12 per share, down from $28.2 million, or $1.37 per share, during the first quarter of 2009. The company blamed a 72% increase in fuel costs for the decline in earnings.
Allegiant paid a special one-time dividend of 75 cents a share on June 2. The company does not regularly pay dividends.
According to Bank of America Merrill Lynch analyst Glenn Engel, whose firm reinstated coverage of Allegiant's stock on June 2, Allegiant has "the lowest unit costs among airlines," more than 20% lower than
( AAI) and
. Allegiant keeps costs low by flying older planes than most other carriers, and also is described by Engel as an "early unbundler," generating "more fees per passenger than any other airline."
Although the company has remained profitable with industry-leading margins in such challenging economic conditions, Engel is neutral on the shares, citing "above average oil sensitivity" and risks associated with expansion. His twelve-month target for the Allegiant's shares is $58, or 16% above Friday's closing price of $50.
is a healthcare information systems provider based in Irvine, Calif. The stock is rated a B-plus (Good) by
Quality Systems last paid a special dividend of a dollar a share in February 2007. The regular quarterly payout is 30 cents a share, for a yield of 2.13% based on Friday's closing price of $56.29.
Net income was $13.1 million, or 45 cents a share, for the fiscal fourth quarter ended March 31, trailing Wall Street's average analysts' estimate of 49 cents a share, but still up 15% from a profit of $11.4 million, or 40 cents a share, in the same period a year earlier. Revenue for the fiscal fourth quarter was $78.5 million, up 19% from last year's equivalent period.
Quality Systems acquired clinical information systems provider Opus Healthcare Solutions on Feb. 10, and announced on June 3 that its NextGen Healthcare division (which now includes Opus) had signed up five critical-access hospitals to implement the company's clinical IS software.
In a report supporting a "Market Perform" or neutral rating on the shares, JPM Securities analyst Constantine Davides cautioned that the company's investments came ahead of the expected sales rise coming from federal stimulus spending. Davides also cited the recent departure of COO Philip Kaplan, who was named to his position just last September. The company didn't provide a reason for Mr. Kaplan's departure.
On a more bullish note, Leerink Swan analyst George Hill has an "Outperform" rating on the shares, and values the stock at between $61 and $65.
, headquartered in Jackson, Miss., is the largest producer of shell eggs, with an 18% market share in the United States, according to Jesup & Lamont's Wisco Research. The stock is rated a B-plus (Good) by
The company reported net income of $34.5 million, or $1.45 a share, for its fiscal third quarter 2010 ended Feb. 27, above year-ago earnings of $30.8 million, or $1.30 a share.
Rather than pay a fixed quarterly dividend, Cal-Maine pays a variable quarterly dividend, with no dividends paid if the company posts a loss, and none paid subsequently until the company becomes profitable for that fiscal year. The dividend for the fiscal third quarter was 48 cents a share, preceded by a second-quarter dividend of 17.2 cents. For the first quarter of fiscal 2010, no dividend was paid as the company reported a $3.8 million net loss for the period amid a decline in demand for eggs from restaurants and other food service customers.
Based on the average payout over the past four quarters and Friday's closing price of $33.19, the dividend yield would be 2.40%.
Wisco Research analyst Stephen Share downgraded Cal-Maine to "Hold" on March 30, citing flat revenue and a 2.7% decline in sales volume year-over-year. The effect of the volume decline was tempered by a 6.2% drop in feed costs.
of Columbus, Ohio makes and markets specialty foods but also has a glassware and candles business. The stock is rated an A-minus (Excellent) by
Net income for the third fiscal quarter ended March 31 was $24.2 million or 86 cents a share, up from $21.2 million, or 76 cents a share, a year earlier. Net sales for the third fiscal quarter were $250 million, a 2% year-over-year increase. Sales benefited from a market share increase in Lancaster Colony's Sister Schubert and Marshall's brands' dinner roll products, with the exit from this niche a year ago by
Lancaster Colony's regular dividend payout is 30 cents a share, for a yield of 2.25% based on Friday's closing price of $53.37. The company last paid a special dividend in 2005 when it made a one-time payout of $2.00 per share.
Elliot Schlang, the managing director of Great Lakes Review - which specializes in coverage of strongly positioned companies in the Midwest -- has a "Gradually Accumulate" rating on Lancaster Colony, telling
the shares represent an "exceptional opportunity for investors wishing to look under the radar." Schlang emphasized the company's lack of debt, free cash flow and history of increasing its dividend each year for the past 47 years.
Written by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.