Focus On Unique Dividend And High Net Cash Stocks

May 26, 2022 2:18 PM ETFF, BSET, DHIL, VIA, LCNB, HOFT, OPY, UBCP, KBAL, GNE, JBSS, MOV1 Comment7 Likes

Summary

  • Average 9.2% Dividend Yield for our high dividend stocks.
  • 46% increase in dividends during the past 1 year.
  • Many stocks with large Special Dividends plus Buybacks.
  • 37% Net Cash to market cap for our high Net Cash stocks.
  • Many possible positive cash usages and outcomes for such stocks.
  • Looking for a portfolio of ideas like this one? Members of Unique Value and Dividends get exclusive access to our model portfolio. Learn More »

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Rising Dividend Yields + Special Dividends

Dividend yield is an important focus of our investment style. Seeking Alpha investors understand very well the benefits of a steady income stream. One feature of our recommendations is the occurrence of Special Dividends, in addition to regular quarterly dividends. Nearly half of the high dividend stocks that we are currently recommending have also declared meaningful Special Dividends during the past one year. Several of our stocks also have declared several Special Dividends during the past few years, including on a regular annual basis. We have provided a detailed analysis of these trends in our individual update reports on specific stocks.

Additionally, nearly half of these high dividend stocks in the chart below are also repurchasing stock presently. This increases the total capital return to shareholders and serves as a positive "signaling effect" that management feels the stock is undervalued and the company's prospects are favorable. Of course, buybacks are no guarantee that the stock will appreciate, and this is especially true in the short-term in market conditions such as those we are experiencing today. But buybacks can also cushion the blow of market declines, and lead to more rapid stock price rebounds given there is a large natural buyer in the marketplace.

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Dividend Yield (Value Investment Principals)

Finally, dividend investors recognize that it is often not the absolute level of dividend yield, but rather the level of the payout ratio and sustainability of dividend that is a more important predictor of stock price performance. Unusually high dividends and payout ratios are susceptible to being cut. In this regard, 9 of the 12 high dividend stocks listed above have either increased their dividend, or else declared Special Dividends, during the past one year. Additionally, the majority of our stocks have pristine balance sheets with large net cash positions (and zero debt), which enables positive dividend news for shareholders. This brings us to our next point...

High Net Cash Investment Strategy

While many analysts focus on dividend yield as an investment strategy, we also focus on companies with high Net Cash positions. Combining high dividend yields with high Net Cash enhances stock price performance. The risk of dividend cuts is mitigated, and the likelihood of dividend increases and Special Dividends is greatly enhanced. In bear markets, high Net Cash, especially at levels over 40% to market cap, can help cushion stock price downside.

In our opinion, many favorable outcomes tend to occur for companies with a high level of Net Cash on their balance sheet. This is our empirical observation, having systematically searched for and recommended high Net Cash stocks globally for the past 12 years. Specifically, the following usages of Net Cash can serve as positive catalysts for performance:

1. Increase in Dividends;

2. Occasional large Special Dividends;

3. Large Share Buybacks;

4. Growth-enhancing acquisitions (hopefully accretive);

5. The company itself becomes an Acquisition Target;

6. Rising interest income in a period of increasing interest rates leading to positive earnings surprise.

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Net Cash Table (Value Investment Principals)

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This article was written by

Deep value, high dividends, unique stocks, institutional quality research
Value Investment Principals [VIP] has a 12-year track record, starting in 2009, focusing on unique under-covered stocks. Our typical ideas have zero/limited research coverage, “deep-value”, growth, high cash and FCF [Free Cash Flow]. We search for High Dividend Yields to appeal to retail clients, creating a steady source of income. We have a strong track record of performance for both large institutional and High Net-Worth Individuals [HNIs].


Approximately 2/3 of our ideas have been in growth industries (with earnings growth of more than 2x the GDP growth rate). Our deep-value ideas all have multiple catalysts that are likely to unfold over the next 6-12 months to unlock value. We offer 10+ page research reports with detailed IS/BS/CF forecasts, rigorous ratio analysis and Discounted Cash Flow valuations alongside price targets on all recommendations. Our team consists of 3 highly skilled analysts with Masters degrees and extensive industry experience. Bottom-line, all of our ideas have been ignored by Wall Street analysts, and this creates opportunity in undervalued, under followed stocks with high dividend yields and growth.


Sandy Mehta, CFA, our founder and Director, has over 30-years’ experience as a PM of a 5-Star award-winning small-cap fund as well as a flagship $15 billion Global Equity Fund. Sandy also founded Acumen Capital Management in 2004, and incubated a global long-short $200 million Hedge Fund. In 2015, he founded equity research firm Evaluate Research, his third entrepreneurial venture in global financial services, focusing on unfollowed equities.


He has an MBA degree [Director’s List Honors] from the Wharton School, and a Master of International Management [with Honors] from the American Graduate School of International Management. He attained his CFA at the age of 25.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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