Park Electrochemical Corp. (NYSE – PKE) announced that its Board of Directors has declared a special cash dividend of $2.50 per share payable February 26, 2013 to shareholders of record at the close of business on February 12, 2013. The Company also announced that it has entered into a five-year revolving credit facility agreement with PNC Bank, National Association. The credit facility agreement provides for loans of up to $52 million to the Company and, subject to the terms and conditions of the agreement, an interest rate on the outstanding loan balance of LIBOR plus 1.15%. The Company intends to use substantially all of the funds borrowed under this credit facility to finance the payment of the special dividend. The Company expects that this dividend will not be treated as a taxable dividend for Federal income tax purposes. As explained in the Company’s December 18, 2012 announcement of its regular cash dividend payable February 4, 2013 to holders of record on January 4, 2013, Park’s cash dividends are treated as taxable dividends to the extent of the Company’s current or accumulated earnings and profits in the United States (computed using U.S. Federal income tax principles), with any amount in excess of such current or accumulated earnings and profits treated as a non-taxable return of capital, to the extent of the shareholder’s adjusted tax basis in the holder’s shares, and with any amount in excess of such current or accumulated earnings and profits and the holder’s adjusted tax basis treated as a capital gain. Distributions treated as returns of capital generally reduce the basis in the shares on which the distributions were made, unless the basis is lower than the amount of the distributions in which case the amount by which the distributions exceed the basis is capital gain. As a result, this special dividend will be treated as a long-term capital gain for shareholders with zero-basis stock (including zero-basis founders’ stock), and such shareholders will not be able to treat this dividend as a non-taxable return of capital for Federal income tax purposes.
Shareholders of Park Electrochemical Corp. looking to boost their income beyond the stock's 1.8% annualized dividend yield can sell the August covered call at the $25 strike and collect the premium based on the $1.00 bid, which annualizes to an additional 8.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.8% annualized rate in the scenario where the stock is not called away.