Finding Big Dividends in Unusual Places

by: Alex B. Gray

When looking for outsized dividends, investors typically turn to the old standbys: Utilities, Master Limited Partnerships, Real Estate Investment Trusts and Business Development Companies. I decided to look for dividend opportunities outside of the typical industries. What I found was a restaurant, an apparel manufacturer, a publisher, a technology company, and even a company that deals in collectibles.

It is important to note that I am not recommending you run out and buy any of the companies mentioned in this article. It is simply an exercise to show that you can find potentially good investments in places that many investors would never think to look. Of course the key to dividends is having a company with stable or increasing cash flow that can support a long-term stream of payouts and hopefully increases. Below are a few companies that had higher then average dividends in industries you might not expect.

Wayside Technology Group, Inc. (NASDAQ:WSTG) is primarily in the business of reselling software and hardware as well as providing technical services directly to customers. You can learn more about the products and service offered by Wayside by visiting the websites of the company's subsidiaries: Lifeboat Distribution, Programmer's Paradise and TechXtend.

The company reported a strong year in 2010 with sales increasing 41% to 206.7 million due in large part to the Lifeboat subsidiary. Earnings per share were also strong coming in at $0.98 per share compared to $0.65 per share in 2009. In addition to the strong earnings, the company has a solid balance sheet with very little debt and nearly $14.5 million in cash and marketable securities.

The company increased its quarterly dividend 7% in the third quarter of last year to $0.16 per share. The stock currently yields 4.3%. A very strong yield for a growing technology company. The stock has been strong in recent months as it traded below $10 per share for most of 2010 until starting a run in late November that has pushed the stock to its current price of $14.90.

Superior Uniform Group, Inc. (NASDAQ:SGC) designs and manufactures uniforms and image apparel primarily for the healthcare, hospitality, food service, retail, rental, other commercial clients and governmental agencies.

The company reported strong earnings for 2010 with a 94% increase to $0.64 per share. Sales increased only a modest 3% to $105.9 million. The significant increase in earnings was the result of an improved cost structure. Sales actually declined slightly in the fourth quarter to $25.97 million compared to $26.51 million in 2009. However, earnings were significantly higher increasing nearly 78% to $0.16 per share. The balance sheet is strong with current assets of nearly $62 million and total liabilities of just over $13 million.

While the company has not raised its dividend, it has maintained a strong quarterly payout of $0.135 per share for many years and has paid a dividend to shareholders every year since 1977. The stock currently yields 4.75%. The stock has performed reasonably well since briefly dipping below $9.5 in December 2010 to currently trade at $11.35.

Courier Corporation (NASDAQ:CRRC) engages in full-service book manufacturing and specialty publishing. Courier is the third largest book manufacturer in the United States.

The company returned to profitability in fiscal 2010 that ended September 25, 2010 reporting earnings per share of $.60 which included an impairment charge in the fourth quarter. Excluding the impairment charge earnings would have been $0.85 per share. Revenues increased a modest 3% to $257.1 million. The first quarter saw revenues dip 3% and earnings slipped to $0.14 per share from $0.23 per share in the prior year. The company blamed this on timing of orders and raised its full year earnings guidance to a range of $0.90 to $1.20 per diluted share based on long-term agreements recently signed with its two largest customers.

One of these customers is Pearson Education which is the largest educational publisher in the world and part of Pearson PLC (NYSE:PSO). The company also recently announced the closing of its smallest manufacturing plant due to competitive pressures and technology shifts. The balance sheet is not cash heavy, but is otherwise in good shape with current assets of over $80 million and total liabilities of $57.2 million. The company also owns various real estate assets the house the manufacturing and warehousing operations.

The company has not increased its dividend in a few years, but pays a healthy quarterly of $0.21 per share for a yield of nearly 6%. The stock price has been mostly flat to lower over the last couple of years. The company is in an industry where you would not expect to see much growth in the future. This may put future dividends in jeopardy unless the company expands into other areas.

Collectors Universe, Inc. (NASDAQ:CLCT) is a provider of value-added authentication and grading services to dealers and collectors of high-value collectibles. This includes collectibles such as coins, trading cards, autographs, stamps, tickets and memorabilia.

The company reported its second quarter earnings last month which saw revenues increase 8% to $9.6 million. Operating income increased to $1.55 million from $1.48 million in the prior year. Net income slipped primarily due to a provision for income taxes to $0.12 per diluted share. The balance sheet is strong with nearly $19 million in cash and only $10 million in total liabilities.

The company increased its dividend on two occasions in 2010 and currently pays a quarterly of $0.325 per share for a lofty yield of 9.17%. Since bottoming out under $3 per share in late 2009 the stock has been flying high trading close to $17 in 2010. The stock has drifted lower since its 2010 peak, but still trades above $14. Business is strong now as the price of precious metals has increased the interest in coins, but I would be cautious when that interest begins to deteriorate.

Ark Restaurant Corp. (NASDAQ:ARKR) operates restaurants and bars as well as fast food concepts and catering operations. The company has restaurants throughout major cities in the United States including New York, Washington, D.C., Las Vegas, Atlantic City and Boston.

Last month the company reported positive results for its first quarter ended January 1, 2011 by increasing total revenues 8.6% to $27.77 million. This excludes additional revenue of $4.77 million from an accounting change. EBITDA increased to $1.28 million from a loss of $181 thousand in the prior years first quarter. I have used EBITDA because it eliminates the impact of the accounting change. Same store sales also showed a modest increase of 0.5%. The company's balance sheet is in good shape with roughly $7.3 million in cash and short-term investments, no long-term debt and only $14.8 million in total liabilities. Other than some peaks and valleys, the stock price has been relatively flat over the last year and currently trades at $14.30 per share.

The company's dividend policy is closely tied to operations and fluctuates accordingly. The company was paying $0.44 per share for several quarters a few years ago until the dividend was completely eliminated in late 2008. The company reinstated its dividend a year later at a rate of $0.25 per share where it remains today. The yield at this rate is an incredible 7% which is very unusual in the restaurant industry. This level of dividend would have me very concerned if the company did not have a history of large payouts. For the moment, the dividend seems safe, but this is not the kind of stock you can buy and forget. Of course, not many are.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.