Editors' Note: This article covers a stock trading with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Yes, of course, it sounds too good to be true and we've all been instructed to run as fast as we can in the other direction. However, especially in a time of very low margin rates (IB runs to below 1%), a stable high-yielder (especially monthly pays) can be quite enticing. OK so what is this great yield opportunity? You have likely never heard of it, Glacier Water Trust 1 9.0625% Preferred (OTC:GWSVP). This is a trust preferred security. I'll skip the discussion of trust preferreds but please click on the link for a decent explanation. Now on to Glacier Water.
The company's equity is privately held and does not trade in the public markets. The trust preferred, however, is still senior to the common stock in the capital structure which provides some security beyond common stock. Dividends of $0.1888 per share have been paid every month since April, 2007. The company paid full dividends, on-time, throughout the financial crisis and the issue is a cumulative preferred. That's all well and good but does the company make money so that they can continue to pay dividends? Great question. Let's take a quick look at the trends.
As the company is privately held, the typical periodic reports are not available. We do have information by which to make an informed judgment. Let's start with 2005, as years prior to that are too far removed to be very pertinent. In 2005, the company had annual sales in the range of $75 million with over 15,000 glacier water vending machines installed. In 2010 the annual revenue run rate rose to approximately $100 million with about 19,000 machines installed. By 2012 the annual run rate rose to $125 million and in third quarter of 2013 (ending September 29) the annualized run rate rose to over $140 million on 23,700 installed machines. Clearly this is a company that does not sit on its laurels and continues to expand. Noticeably they have issued no new trust preferred shares and are content to grow with self-generated capital. For example, the company purchased Aqua Fill (a smaller competitor) in September of 2012.
The issue is callable at par (an approximately 3% discount to today's price) but it has been callable since 2003 but not shares have been called. Of course past experience is not a good predictor of future events but this history does create a pretty good picture of the company's intent.
Perhaps the best thing about this high yielder is that the price does fluctuate. In the past six months, which I feel are a better barometer for the future than a longer time period, the security has ranged from a low of 25.65 (reached today) to a high of 26.55 on November 21, 2013. My advice, if you're looking for a good yield and monthly payout, but don't want to pay too much, is to leave a limit buy order active somewhere in the mid-25.80's. You are likely to get hit at some point and stand a good chance of a quick sale in the 26.20 range if you are a trader, otherwise hold for the regular dividends!
Disclosure: I am long OTC:GWSVP. 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.