Today we take a quick look at an Ian Wyatt teaser, since he is pushing it hard today with a special “webinar” presentation and a tight deadline… which will probably spur some folks to sign up in eagerness to “claim $2,363” in a big check that will be issued on May 22 (which is, you note, tomorrow). I didn’t sit through the actual webinar, but presumably, as with past teaser pitches from this publisher, it will end up being an ad for Wyatt and Steve Mauzy’s Dividend Confidential.
We see these ads all the time from various publishers touting the excitement of a “check” that you can “claim” to boost your retirement… and, of course, it’s never nearly as exciting as the pitches make it seem.
Yes, you can get a check in the mail… but you don’t “claim” a check, you INVEST in a company to earn a portion of their earnings (or sometimes participate in the windfall from an asset disposition, or rejiggering of their balance sheet that lets them distribute “excess cash” to shareholders).
Sometimes that “check” takes the form of a regular dividend, sometimes it’s a special dividend, and depending on how the company itself is doing the payouts can be either positive or negative for the share price (and, depending on the tax treatment of the dividend, it can be either positive or negative for shareholders), but it’s important to look at the big picture and not get sucked into the “your check is in the mail” spiel.
So with that caveat, and the fair warning that we have covered similar “claim your check” pitches several times, with both successes and failures on record from Ian Wyatt and others, what is this latest one?
Here’s a bit of the spiel from the email I received this morning:
“One little-known midwestern company just revealed a huge payout…
“And it’s your chance to claim $2,363 tomorrow.
“Click here to get on the list ASAP.
“This company just announced that it is paying out over $260 million to stakeholders …
“Allowing you and me to collect a huge check on May 22.”
Notice that wording? Nothing about buying or investing, just “get on the list” and “collect a huge check.”
So which “little-known midwestern company” is this? This is the background, per Wyatt:
“Back in 1956, a 19-year-old named Charles bought one truck.
“And he hung out his shingle as a trucker.
“Today, he runs a multi-billion-dollar trucking company with 7,400 trucks and 24,000 trailers. And as you might expect, it’s become a major success.”
We’re told that this is a worldwide shipper, and that they have more than $2 billion in annual sales… so they’re not all that small. Wyatt also says that the profits tallied up to “nearly $170 million” last year.
This “Charles” is apparently still owner of 30% of the shares, and is in “semi-retirement” — so it sounds like this dividend is part of his way of getting some money out of the company without giving up control. That’s not so unusual for family-owned companies, sometimes big shareholders choose dividends or special dividends as a way to monetize some of their stake without losing their voting control. This isn’t necessarily a bad thing, since all shareholders get the same payouts, but it gives you an idea of the incentive for the payment — which, in this case, sounds like it must be a special dividend since we’re told Charles will collect $78.9 million (of that total $260 million disbursement), and that’s a LOT more than the company made in profits.
Companies can pay out more than they make in profits in the form of a special dividend, either because they have excess cash or because the company wants to reward shareholders (including insiders), but they can’t consistently pay out a lot more than they earn, so that means we’re probably looking at a one-time special dividend.
And now the big question: What’s the company?
This is, sez the Thinkolator, Werner Enterprises (WERN), which was indeed founded by one guy with a truck in 1956… though, in a bit of a red herring from Wyatt, his name is Clarence Werner, not Charles. C.L. Werner, which is apparently how he likes to be referenced, is 80 years old now but is still the executive chairman and still holds a major stake… it looks like he holds about 15 million shares in a couple different trusts and six million shares directly, so that would indeed net him about $78.9 million when the checks for their latest special dividend go out.
What are the details of the dividend? Werner is “restructuring the balance sheet” to borrow some money, and using that money to both buy back shares and fund a special dividend of $3.75 per share that they will disburse to shareholders of record as of May 24, they say, and the payment will be received by shareholders on June 7 (I guess it technically could be a “check” for some people, though the vast majority of investors receive their dividend payments electronically in their brokerage accounts). This dividend is not expected to be classified as “return of capital,” so it will presumably be fully taxable as income… whether it’s going to be qualified for lower dividend tax treatment or not, I don’t know. They explained their strategy in a quick interview with FreightWaves if you’d like more detail.
Werner does also pay a regular dividend, nine cents per quarter, so the “regular” yield for the shares is about 1%. This special payment, based on the current share price of about $34.50, is just shy of 11%.
So how do these kinds of dividends work? Basically, a company decides either that it doesn’t need the cash or that investors should be rewarded for holding their shares, and it determines to pay out a portion of their excess cash to shareholders. In this case it looks like the motivation is to pull some cash out of the company to reward shareholders, perhaps especially their founder and largest shareholder, and that’s not all that unusual, especially with family-controlled companies — but sometimes these special dividends are also the result of companies having windfall returns that they don’t think will be repeated (you don’t want to commit to a “regular’ dividend unless you can keep it up), or of selling off assets or divisions.
Once that’s done, they set a record date and a payment date, and the ex-dividend date is usually set by the company or the exchange to be a day or two before the record date (the “ex-dividend” date is the day on which it begins trading without the dividend attached — so folks who buy it that day do not receive the dividend). In the case of “special dividends” of large size, though, the ex-dividend date is often set after the payment date to avoid confusion — meaning that you get the dividend if you hold the stock the day it is paid, and you don’t get it if you sell before the payment is made. I haven’t seen an official ex-dividend date declaration for WERN, but if you buy today or tomorrow you would certainly get the dividend.
Should you want to? Well, that mostly depends on whether or not you want to own Werner shares into the future, and whether you want to make a short-term taxable gamble that they’ll climb into the dividend payment and bounce back quickly afterward. If you think they’re doing well and will continue to be a strong global logistics company, then you can collect that special dividend and possibly profit from the tendency that stocks who pay special dividends have of recovering to their pre-dividend price.
But it’s not a guarantee that it will work out and give you “free money”. As soon as the dividend is applied to shareholder accounts, the stock goes ex-dividend and will almost certainly open for trading the next day at whatever the prior price was minus $3.75 (after all, the company is paying out that cash — so it must be exactly that much less valuable the next day). It is not required to stay at that price, of course, that will depend on market dynamics — and on whether people bought for this special dividend, or still like the company.
How would it work for Wyatt to get the $2,363 check that he expects for his personal holdings of Werner Enterprises shares? Well, the dividend is for $3.75 per share, so just divide $2,363 by $3.75 and you learn that this means Wyatt has 630 shares. That means if you want a $2,363 check on June 7 you’d have to buy 630 shares, which would cost you about $21,750. And, of course, that $2,363 is taxable in some way so what you’re effectively doing is signing up to do a quick taxable trade.
In order for that trade to work out for you, then, you need one of two things to happen:
First, the stock could surge higher going into the dividend payment ex-dividend date (which could be May 23, as announced, but will probably actually be June 8). That sometimes happens because people get (sometimes irrationally) excited about special dividends. If that happens, you would see the stock rise in the near term, give up that $3.75 per share when the dividend is paid, and still be a net positive gainer in the short term, even after the tax is paid on that dividend.
That’s basically a bet that “people will eat up the special dividend news and be excited,” and the real risk there is that much of that gain often happens immediately when the dividend is announced, so you’re really just betting on whether that “we love special dividends” jump has already happened. They announced the dividend and stock buyback last week, on May 14 after the market closed, so you can see what the stock has done since then…
Or Second, the company could be a great investment over the longer term, and recover from the dividend payment to trade at a similar PE ratio, ignoring the additional debt they put on. This is possible, particularly because the shares are (arguably) rationally valued at about 14X earnings — be aware, though, that analysts expect very low growth rates from here in both revenue and earnings, a 10% earnings boost in 2019 but much lower growth of 2-4% after that, so 14X earnings is not necessary “cheap.” Learn about the company and make some judgement on how likely you think it is that they’ll be able to grow before you make that call.
If you want to do some comparison shopping, the trucking company that has the most similar valuation right now (on PE and Price/Sales) is Knight-Swift Transportation (KNX), which also happens to be the biggest operator in this segment (that being “full truckload” trucking companies who are “asset-based” — meaning they own their own equipment, they’re not just a broker).
The question there, then, if you like the stock longer-term, is whether you want to buy it right before the dividend is paid… or after. Sometimes, if the reason for buying was this “special dividend excitement”, then you can actually see a good buying opportunity for the shares after the dividend has been paid and investors who were just trading it for that special dividend move along, driving the net price to some lower point and letting you benefit from future growth in the company and from possible share buybacks while paying a lower price per share. After all, why take that special dividend unless you like paying taxes?
So that’s the basis for your decision… do you want to try to ride a further possible runup in the shares leading into the dividend payment in the coming days? Would you prefer to just skip the dividend and buy the stock $3.75 cheaper after it is paid, or maybe cheaper still if a bunch of shareholders want to sell after the dividend payment? Or, of course, there’s always option three: If you don’t like the company and don’t think it has good long-term prospects, you don’t have to buy it at all.
The most successful of these special dividend teaser recommendations that we’ve seen Ian Wyatt make was of Warrior Met Coal (HCC), which was an “emerging from bankruptcy” coal miner that was doing well enough to re-leverage its balance sheet (borrow money) and use that to reward its shareholders with big special dividends.
Wyatt pitched that in early November of 2017, and the stock surged further into the ex-dividend date, then fell by the amount of the dividend but recovered unusually quickly… and they ended up doing the same thing again six months later, with another special dividend, so overall folks who just bought during the run-up to the special dividend and held on would be sitting on shares that are almost unchanged in price right now, a performance slightly worse than the S&P 500…
But, thanks to those two big special dividends, a dramatically better total return…
So that’s the dream… but it doesn’t often work out quite that spectacularly — the Wyatt folks also touted Changyou.com (CYOU) with an ad much like this one last spring (though they called them “Liberty Checks” instead of “Retirement Royalties”). Changyou, a Chinese gaming company that had spun out of Sohu earlier, was another company that announced a special dividend (in their case, because they had a lot of excess cash), and you can see their share price did run up a couple percent more heading into the dividend payment, but did not recover to pre-special dividend levels. The total return for those shares would have been a loss of 5%, not counting dividend taxes (I don’t remember what the dividend treatment of those was)…
So that one was not a great market-beater, but neither was it abysmal if you held for a year, it came close to keeping up with the market and actually did a little better than the large-cap China index, and CYOU actually just announced another large special dividend earlier this month, so we’ll see what happens with that one.
And with that, dear friends, I’ll leave you to your cogitating — will WERN be a big special dividend winner, or maybe even end up paying out more special dividends in the future (this is a capital intensive business so the amount of debt they want to carry is probably limited, but you never know)? Are you interested in a family-controlled trucking and logistics firm that trades at about 14x earnings with or without the novelty of the special dividend? Let us know with a comment below.
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