Getting A Special Yield With Dividends

by: Valuematters

Today, companies paying dividends are all the rage, whether they are companies with a high yield or companies with a high dividend growth rate. The market has driven up the prices of dividend payers significantly, across the board. Because of these increased prices (and in most cases lower yields) investors are having to be particularly diligent to find good dividend paying stocks that offer a reasonable yield, but still the potential for income growth. One area I think investors should consider is small-cap stocks that offer a lower "normal" yield, but have the history and ability to pay special dividends that will push up the overall yield of the company.

In this article and as shown in the table below, I have included companies that meet certain criteria. The criteria are:

  1. Market cap of less than $1B
  2. Current dividend yield of at least 1%
  3. Must have paid a special dividend at least 2 times in the last 5 years
  4. Must have a normal dividend growth rate of at least 5%
Symbol Market Cap Dividend Yield Regular Dividend 5-Year Growth Rate Last Special Dividend Date
ESP $55M 3.9% 7.4% Dec 2012
SPAN $55M 2.7% 9.3% Nov 2012
ATRI $415M 1.1% 18.5% Nov 2012
RAVN $951M 1.6% 13.8% Sept 2010
BOLT $129M 1.8% *57.9% Nov 2012

*Dividend growth rate is annualized period from March 2012 to Nov 2012

Espey (NYSEMKT:ESP) - As noted in the 10-K Espey Mfg. & Electronics Corp. is a power electronics design and original equipment manufacturing (OEM) company with a strong history of both growing their regular dividend (although it is a more moderate 7.4%) and paying special dividends, with their last special dividend being declared in December 2012.

Of all on the list Espey is the one I feel represents the best value as indicated in my article written here. The company has continually generated strong cash flows and rewarded shareholders by paying out these cash flows as a special dividend. Based on a special dividend of $1.00 per share and the regular annual dividend of another $1.00 per share, the company would represent a 7.7% yield at today's $26.99 share price.

Span-America Medical Systems, Inc (NASDAQ:SPAN) - From the 10-K they manufacture and distribute a variety of therapeutic support surfaces and related products utilizing polyurethane and other foam products for the medical, consumer and industrial markets. The company operates primarily in the US and Canada and in December 2011 acquired M.C. Healthcare Products, which expanded their Canadian reach and exposure.

The company has grown their regular dividend at above 9% for the last 5 years and last declared a special dividend in November 2012. They have had two special dividends in the last 5 years, both of which were for $1.00 per share. Using the regular annual dividend of $.50 per share and a special dividend of $1.00 per share on today's price of $18.60, it would mean an annual yield of 8.6%.

Atrion Corporation (NASDAQ:ATRI) - The company's last 10-K says Atrion Corporation develops and manufactures products, primarily for medical applications. Their medical products range from fluid delivery devices to ophthalmic and cardiovascular products. The company's revenues are split as shown in the table below:

Percent of total revenues of $118M, $109M, and $101M for the years 2011, 2010, and 2009, respectively
Product Type 2011 2010 2009
Fluid Delivery Products 38% 36% 35%
Cardiovascular Products 29% 29% 29%
Ophthalmic Products 17% 18% 19%
Other 16% 17% 17%

The company has grown their regular dividend above 18% over the last 5 years and last declared a special dividend in November 2012. They have paid 3 special dividends in the last 5 years, which were for $10.00, $3.00, and $6.00. With an annual dividend of $2.24 per share and even if you assume a special dividend that is the average of the 3 they have paid ($6.33), it would give an annual yield of 4.3% on today's price of $201.00 per share. If they are able to produce a special dividend of $10.00 per share, it changes the yield to 6.1%.

Raven Industries (NASDAQ:RAVN) - As provided in the 10-K, Raven is an industrial manufacturer providing a variety of products. The company is split into the following business segments:

  1. Applied Technology - Applied Technology designs, manufactures, sells, and services innovative precision agriculture products and information management tools that help growers reduce costs and improve farm yields around the world.
  2. Engineered Films - This segment produces rugged reinforced plastic sheeting for industrial, energy, construction, geomembrane and agricultural applications.
  3. Aerostar - Aerostar sells high-altitude research balloons and tethered aerostats for government and commercial research.
  4. Electronic Systems - The company has focused this segment's capabilities in electronics manufacturing services ((NYSE:EMS)) for commercial customers with a focus on high-mix, low-volume production. Assemblies manufactured by the Electronic Systems segment include avionics, secure communication, environmental controls and other products where high quality is critical.

The split of the sales between these segments is shown in the below table:

Percent of total revenues of $382M, $315M, and $238M for the years 2012, 2011 and 2010, respectively
Segment 2012 2011 2010
Applied Technology 34% 31% 36%
Engineered Films 34% 33% 26%
Aerostar 13% 15% 11%
Electronic Systems 18% 21% 26%

The company has grown their regular dividend at almost a 14% annual growth rate over the last 5 years and has paid 2 special dividends in the same time span. The last special dividend was $.625 per share in September 2010, so it hasn't paid as recent as some of the others on this list. The company also doesn't have a large stockpile of cash as it has at other points in the past, so another special dividend may not be in the near future. However, they are capable of producing strong free cash flow, and I find the current valuation at least worthy of further investigation. That said, if the company pays the current annual dividend rate of $.42 per share and is able to pay a $.625 per share special dividend, it would mean an annual yield of 4%, based on the current price of $26.33.

Bolt Technology corporation (NASDAQ:BOLT) - Taken from the 10-K, the historical part of Bolt deals in products that are used in marine seismic exploration surveys to acquire seismic data. The remaining part stems from a business acquired in early 2011 and deals primarily with underwater robotic vehicles.

The company operates in four reportable segments shown below:

  1. Seismic energy sources - Develops, manufactures and sells marine seismic energy sources (air guns) and replacement parts.
  2. Underwater cable and connectors - Develops, manufactures and sells underwater cables, connectors, hydrophones, depth and pressure transducers and seismic source monitoring systems.
  3. Seismic energy sources controllers - Develops, manufactures and sells air gun controllers/synchronizers, data loggers and auxiliary equipment.
  4. Underwater robotic vehicles - Develops, manufactures and sells underwater remotely operated robotic vehicles.

Bolt doesn't have a long history of paying a dividend as the others on this list do, but it does have a history of producing strong cash flows and more recently of raising the dividend. The company initiated a regular dividend of $.05 per share (quarterly) in March 2012 and by November 2012 that dividend has grown to $.07 per share (57% annualized growth). Additionally, the company has twice paid a special dividend, with the last one coming in November 2012 for $.50 per share (the first was $1.00 per share). If the company can continue paying a $.07 quarterly dividend and pay a special dividend of $.50 it would mean an annual yield of 5.2% based on today's price of $15.00. Obviously as the history is short and because the company doesn't have the same stock pile of cash it did a few years ago when first starting the dividends (regular and otherwise) it may not be likely they can continue at the same pace (they still have $22M in cash as of December on a $130M market cap). Additionally, Bolt's business has a significant tie to oil and gas exploration activity and thus oil and gas prices and as such can fluctuate significantly as those prices do.


While these stocks may or may not be able to continue paying the special dividends and/or growing the regular dividend, they do have a strong history of doing so. Even if they are only able to pay a special dividend every 2 out of 5 years it will still boost the overall yield significantly. It is important to keep in mind all of these are small or micro-cap stocks which carry additional risk, mainly in the form of being an illiquid stock.

Disclosure: I am long RAVN, ESP, SPAN, BOLT, ATRI. 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.

Additional disclosure: This article should not be taken as investment advice, and is for informational purposes only.