EnviroStar's Special Dividend Will Increase Earnings Yield To 10%

Nov.14.12 | About: EnviroStar, Inc. (EVI)

EnviroStar (NYSEMKT:EVI) is a company worth considering as an investment. The company "distributes commercial and industrial laundry equipment, dry cleaning equipment, and steam and hot waters boilers in the United States, the Caribbean, and Latin America." I would consider this to be a fairly mature and steady industry with few fluctuations. The stock has a beta of .09, and over the last four years it has consistently produced full-year EPS of between $0.06 and $0.09 per share.

Over the next six months I believe the company will increase its earnings yield from ~5% to ~10%. Earnings yield is the inverse of the P/E ratio, which I view as a more intuitive way to understand a company. Basically, the money you invest in the company at EVI's current earnings yield will return 5% per year. You then have to adjust that by dividend tax rate of 15% (subject to change Jan. 1) in order to compare it against how much you would earn in the bank.

This increase in the earnings yield will occur due to two factors: increased backlog and the board of director's announcement on Nov. 9 of a $0.60 per share special dividend, payable on Dec. 12, 2012, to shareholders of record on Nov. 28, 2012.

According to the 10-Q:

During the first quarter of fiscal 2013, the company received a number of large orders for shipment during fiscal 2013. These orders have increased the company's backlog to historic levels and customer deposits associated with these orders have increased our cash by $3,870,059 to $10,397,999. Inventories increased by 8.4%, during the first quarter of fiscal 2013 when compared to the same period in 2012 to support the increased orders.

The second driver, the special dividend, will decrease the stock price from $1.50 to $0.90. This will thereby lower the denominator in the earnings yield while still producing the same EPS.

EVI's management is completely aligned with shareholders as they own ~60% of the company. This is great news for investors as management is more likely to act in the best interest of shareholders. The special dividend announcement ahead of the potential dividend tax increases related to the upcoming fiscal cliff is a perfect example.

I believe EVI is a great purchase at these prices as you will essentially earn a steady 10% yield on your money for the indefinite future. That beats any CD today.

Disclosure: I am long EVI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: As with all investing, micro-cap investing involves risks. Please do your own due diligence and do not solely rely upon articles like this.