One Way to Support a Stock Price …

One of our old faves announces a monthly dividend

By Travis Johnson, Stock Gumshoe, December 12, 2012

Just announced this morning, after a brief trading halt: Sprott Resource Corp (SCP.TO SCPZF) will begin paying a monthly dividend.

This is effectively a closed end fund of investments in natural resource companies, along with some cash and gold. I’ve written about them many times and hold shares personally, and they’ve been buying back shares and clearly a bit frustrated that the stock is being valued at a discount to their net asset value … so now they’re going to pay a dividend, which immediately bumped the shares up by about 15% to the $4 range.

In the press release, CEO Kevin Bambrough said:

“”We are committed to providing shareholders with an attractive total return and increased liquidity. “We feel that our business has matured such that monetizations of our portfolio companies will be more predictable and the returns on such monetizations will support the Dividend Policy and grow SRC’s Book Value per common share.”

The dividend policy is interesting — it is tied to book value per share, which presumably will help keep the stock price tied to that book value. They will pay out roughly 10% of book value in dividends per year, but since they’re paying each month it will be 0.833% of book value per month. The first payment will be 3.8 cents in January, payable to shareholders as of December 31, and the dividend will fluctuate with changes in each quarter’s reported book value.

I would actually prefer to see Sprott reinvest their money into more “big deals” that could provide transformational returns … but this indicates to me that they have plenty of cash for the deals that are available to them and want to support the stock instead of just keeping the long-range view (they earn lower fees if the book value drops as a result of the dividends, I think, though management also owns a large chunk of the shares so will receive dividends, too).

I think that the shares are still reasonably valued in the low $4-4.50 range, as I noted most recently when I wrote about the stock at the end of November in a Friday File (it was an “easy buy” then, at $3.60), and that doesn’t change with this dividend policy. The announcement bumped the shares immediately up to $4.05 or so, I don’t know if they’ll come back down once it settles or not but ...

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