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Alex B. Gray
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Alex B. Gray is the founder and editor of the Scavenger Report newsletter and the ScavengerReport.com website. The Scavenger Report is a research-focused investment newsletter for the independent-minded investor. The ScavengerReport.com website also contains independent research on individual... More
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  • Two Small Fries Serving Up Big Dividends 0 comments
    Nov 10, 2010 5:44 PM | about stocks: AMNF, BABB, TSN, SFD, MITSY, BAGL, THI, PNRA
    While I do follow a limited number of stocks that trade under $1.00 per share, I will seldom write an article on such stocks unless certain criteria are met.  My primary criteria for following and writing on low-priced stocks boils down to what is behind the stock.  Most importantly there must be a real business with real assets that produce real revenues and real earnings or earnings potential.  It must be a business that has a history and is not just a startup or concept stock.

    Below are a two such stocks that not only have a real businesses, but also share the profits of those businesses with their stockholders in a big way.  These dividends are not artificially inflated due to a sudden drop in the price of the stock.  In fact, one of the stocks is trading near its 52 week high and has been paying high dividends for years.  That being said, low-priced stocks can be very volatile and are not appropriate for all investors.  Be careful to use limit orders and wait for the stock price to come to you.  Even though these businesses are real, they are small players with much larger competitors.

    Armanino Foods of Distinction (OTCPK:AMNF) engages in the production and marketing of primarily upscale Italian frozen food items.  Its products are marketed internationally and include flavored prestos, frozen pastas, sauces, spreads, focaccia and meatballs.  The company’s headquarters and production facility are located in Hayward, California.  Over the last few years the company has been growing sales and profits by developing its industrial accounts and further expanding its international presence. 

    In the third quarter of 2010 the company reported record numbers including a 10% increase in sales and a 34% increase in net income when compared to the same period in 2009.  For the first nine months in 2010 the company has net income of $0.05 per share and a trailing P/E of 12.

    The company has always been very shareholder friendly and recently paid its 41st consecutive quarterly dividend.  In addition to it regular quarterly dividend, the company will often pay a special dividend when company performance allows for it.  Including special dividends the company has paid a total of $0.0495 for a yield of approximately 7% in 2010.  Excluding the two special dividends paid in 2010, the company is yielding 4.7%.  With a clean balance sheet and continuously improving results, I see no reason for the company to make any material changes to its current dividend policy.

    The stock has had a nice run since it reported third quarter earnings on October 20th so it may be wise to wait for a pullback.  However, it may not be a substantial pullback since the company announced it expects to exceed its 2009 fourth quarter results aided by the signing of three relatively major retail accounts.  In addition, the fourth quarter retail business is seasonally strong due to sales of holiday meatballs.  The company also recently authorized a stock buyback program that should provide additional support for the stock price.

    This is a strong small company, but it competes with much larger operations including Tyson Foods (NYSE:TSN), Smithfield Foods (NYSE:SFD) and even Japanese conglomerate Mitsui & Co. Ltd (OTCPK:MITSY).

    BAB, Inc. (OTCQB:BABB) primarily franchises its restaurant concept under the Big Apple Bagels and My Favorite Muffin trade names.  The company also distributes frozen raw dough and par-baked bagels under the Jacobs Bros. Bagels name.  As of August 31, 2010 the company had 103 units in operation in 26 states.

    Revenues have been down in 2010, but the company’s profits have remained flat amid a difficult period for the restaurant sector.  Since August the company has reported record breaking and better than expected sales at two of its new café concept stores which may be an early sign that the company can begin rebuilding some sales momentum.  The company has new café concept store locations under development in Indiana, Michigan and Denver, Colorado.

    The is again a company that has shown a willingness to share profits with its stockholders and has been paying dividends for the better part of 7 years.  The company has occasionally adjusted the dividend and at times paid semi-annual and special dividends instead of the current quarterly dividend.  In early 2009, the company did cut it quarterly dividend from $0.02 to $0.01 per share as a result of lower sales and profits.  Even with the lower payout, the current yield is still over 9%.  Albeit small, the company’s balance sheet is in decent shape and it should be able to support the current dividend as long as the company remains profitable. 

    The company does face stiff competition from the likes of Einstein Noah Restaurant Group (NASDAQ:BAGL), Tim Hortons (NYSE:THI) and Panera Bread Co. (NASDAQ:PNRA) which may jeopardize the ability to sustain the dividend at current levels.


    Disclosure: The author has had a long position in AMNF.PK since 2005 and a very small long position in BABB.OB.
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