This $100 or so stock just announced a special dividend of $5—great return on investment for shareholders of record as of February 27.
National Presto Industries (NPK)
From Dividend Confidential
National Presto Industries, a Watch List stock, declared regular and special dividends after the market close on Friday. The regular dividend, paid annually, is $1.00 per share. The special dividend is five times the regular dividend. National Presto will pay a $5.00-per-share special dividend.
The dividends—$6.00 per share in total—generated a 6.2% yield on our $96.50 entry price, based on the mode price on Feb. 12. The dividends will be paid on March 15. The ex-dividend date is Feb. 28. Investors have until the close of trading on Feb. 27 to buy National Presto shares and collect the dividends.
I like the dividends. I like the company behind the dividends.
National Presto Industries runs two primary businesses: housewares and small appliances and defense ammunition.
You likely recognize the National Presto name by its housewares and small appliances business. Wander down the appliance isle of any large-chain department store and you’re sure to encounter National Presto’s pressure cookers, deep fryers, electric skillets, and popcorn poppers.
Housewares and small appliances offer name recognition. The defense ammunition business offers profits.
The defense ammunition business is actually the larger and more profitable of National Presto’s two businesses. Ammunition sales account for roughly 70% of National Presto’s $350 million annual revenue. Defense ammunition operating margin—at 20%—is nearly five times as wide as housewares and appliances operating margins.
I’ll concede that National Presto is no growth company. Annual revenue orbits close to $350 million year after year.
Efficiency is the draw.
Management continually squeezes more from the revenue it generates. The operating margin has expanded to 19% over the trailing 12 months from 14% a few years earlier. Net margin has expanded to 16% from 10% over the same period.
As operating efficiency goes, so goes the cash account. National Presto’s business generates a lot of cash. The cash account grows annually. National Presto holds $127 million of cash and cash equivalents at last report. That’s more than $18 per share. Four years ago, the cash account held $59 million of cash and cash equivalents.
I like how management has conservatively managed the capital structure. National Presto carries no long-term debt. Cash on hand exceeds current liabilities by a factor of seven. National Presto’s cash account could settle all the company’s liabilities and be left half full.
Most of all, I like the special-dividend-trade opportunity.
National Presto has a 30-year history of paying an annual special dividend. The dividend payment has grown over the years. The special dividend has proven to enhance shareholder returns. Most of the special dividends would have produced a profitable special-dividend trade.
Investors have historically reacted positively to National Presto’s special dividends. I like the odds for another positive reaction in the future.
Ian Wyatt, Dividend Confidential, https://premium.wyattresearch.com/, 866-447-8625, February 14, 2018