Today we have a very brief pitch to look at — it’s a teaser for a “webinar” that Ian Wyatt will be hosting, all about “Supercharged Payouts”, and the webinar hasn’t happened yet (it’s scheduled for October 21 at Noon), but we can give you a little background… and tell you which stock he’s almost certainly going to be pitching. My guess is that this will be an ad for Steve Mauzy’s Dividend Confidential, since that was the service they’ve promoted in the past with similar “distribution” ads, but that’s just a guess.

Here’s the tease in an email I received:

“This email is to inform you about a new cash distribution most investors don’t know about….

“An American company is about to send out payments totaling $1.29 billion.

“And thanks to a little-known strategy that has an average payment of $1,191 every 20 days…

“You could collect a very handsome payout this month.”

So this is almost certainly a “special dividend” play, something Ian Wyatt has been a big fan of from time to time, and has used in promotions for his newsletters many times… though it’s been a while, he pitched a bunch of different payouts from 2017-2019, and we covered them pretty regularly, but I don’t think I’ve noticed one of these since the COVID collapse last year.

If you don’t know what “special dividends” are, they’re essentially one-time dividends that don’t imply any promise of future continuing dividend payments. Companies occasionally get into a pattern of recurring special dividends, offering a special extra dividend each quarter or each year but not calling it a “regular” dividend, mostly because that makes it easier to adjust the amount without angering investors (people expect special dividends to be irregular, they expect regular dividends to either stay flat or steadily increase, and almost always punish stocks when a regular dividend is reduced)… but mostly, they’re one-time payouts for some specific reason.

In theory, special dividends are used as a way to disburse excess capital to shareholders, while regular dividends are used to disburse a portion of ongoing earnings to shareholders. They’re often caused either by investors demanding that a company do something with all its extra cash, or by some sort of corporate action that leads them to have excess capital (like selling a division, for example).

In the past, Wyatt has referred to these special dividends as providing “quick profit opportunities”, mostly because of the tendency of the stock to recover back to close to the price it traded at before the dividend payment… though that, of course, does not happen every time. Nothing is certain in the stock market.

Stocks always adjust in price for dividend payments, and this process is both automatic and unrelated to investor sentiment — if your $40 stock is going to pay a regular 30 cent dividend to shareholders who hold it through October 19, for example, and the stock closes at exactly $40 today, then the stock tomorrow will open without the right to claim that dividend payment (that’s the stock trading ‘ex dividend,’ which means ‘without the dividend’), and it will open at a price of $39.70. It could immediately shift higher or lower after the open, depending on what investors think of the company tomorrow, but that dividend adjustment is automatic.

The same is true for special dividends — if that same stock declared a special dividend of $10, it would open $10 lower on the day after the dividend payment is made (large special dividends, unlike regular dividends, typically are forced by the exchange to have ex-dividend dates after the actual dividend disbursement date, to make sure there’s no confusion about who gets the dividend… and before you ask, don’t waste any time trying to “game the system” with those, everyone trading around that date either gets $10 plus a $30 stock, or a $40 stock, there is no secret backdoor that lets you get $10 in cash plus a $40 stock through some crafty trading scheme).

So what’s the “secret payout” this time around? What Wyatt is almost certainly going to pitch, with a dividend that will be paid out to everyone who owns the stock by October 29, is Laureate Education (LAUR). Laureate is the owner of several universities and technical schools in Mexico and Peru, but it was previously also the owner of a major US-based e-learning university called Walden, which they sold in August for $1.3 billion. That’s where the money for the special dividend is coming from.

The basics of the special dividend are as follows: Laureate will distribute $7.01 in cash per share, which totals about $1.29 billion. They are also likely to distribute another $150 million or so once some escrow and restricted cash parts of the deal are closed, which will be sometime before the end of 2022 — so that would be something like 80 cents or so investors could expect, sometime next year. They do not pay a regular dividend.

Laureate shares closed yesterday at about $17.35, so if they remain here through next Friday, the 29th, shareholders will receive that $7.01 at that time, presumably after the market close on Friday the 29th, and the shares will open at $10.34 the following Monday. Instead of being a shareholder in a company with an enterprise value of about $3 billion, you’ll be a shareholder in a company with an enterprise value of about $1.7 billion.

Whether that ends up being appealing probably depends in part on the tax treatment — if you’re taxed on the $7.01 dividend, then this is a bum deal. Most likely it would be considered a return of capital distribution, and it would just lower your costs basis in the stock instead of generating an immediate tax obligation, but if I were considering investing I’d look closely at that first.

I’m not particularly interested in this deal, because I don’t see any immediate appeal in investing in a company that owns a few education brands and universities in Peru (which is doing well right now for them) and Mexico (which is not). They did provide some updated guidance in early August and think the business is going pretty well, they have surplus cash even after this dividend (about $350 million, partly thanks to the prior sale of their Brazil operations), and they expect to have enrollment growth of 4% over last year, revenue growth of 2-6%, and adjusted EBITDA of $210 million (~15% growth) after reducing some costs. So really, you’re buying a handful of universities in Latin America that are growing slowly, and after accounting for the special dividend you’re paying about 7-8X adjusted EBITDA for those businesses.

It’s probably not an awful deal, but neither is it supremely exciting unless you have some insight into these universities and the power of their brand or their network effect in those countries. I don’t have any such insight, and the growth is not impressive enough to make me want to invest in a company that is trying to improve its operations by shrinking. Laureate has been trying to “shrink to grow” ever since it went public, the revenue has fallen from about $4.5 billion in 2016 to roughly $1 billion this year, and that may work out… but it doesn’t feel like it will work out in a hurry, not with 2% revenue growth. I hope the company is doing well by its students and communities, and it does market that as part of the deal — it has been a certified “B Corporation,” a process which is designed to hold companies accountable for their social or environmental impact, not unlike Lemonade (LMND) or Ben & Jerry’s… but it’s also a for-profit university, in a world dominated by nonprofit or state-owned institutions, I don’t know where the balance lies for them. I’ll pass, personally.

What is that “$3,901 Supercharged Payout?” That’s just math — if you buy $10,000 worth of shares, that’s almost exactly what you would receive as your special dividend. If you make that investment today, then on November 1, assuming the shares haven’t moved higher or lower by then, you’d have something like $3,901 in cash and $6,109 worth of LAUR shares.

Does Laureate return to a $17 share price (or higher) after the special dividend is paid? The only answer can give is “maybe” — right now, the two analysts that cover the stock think they will have similar low-double-digit growth in revenue next year, but that the focus on these more profitable institutions will lead to better margins, and earnings of 57 cents per share, with pretty meaningful growth in EBITDA to $280 million. The only year in which Laureate Education has ever reported a meaningful profit was 2016, which, perhaps not coincidentally, was the year before their early 2017 IPO.

Given those estimates, and assuming the shares are at this price (a net of $10 after the special dividend), that’s a solid valuation of about 17X forward earnings, which could be pretty reasonable for a company that’s growing revenues at 2%, even though they’ve never really had any revenue growth. So it’s probably not a ridiculous idea if you have reason to believe that’s how it will play out — though whether you buy today for $17 or on November 1 for $10 is a coin flip. It really only makes sense to buy shares today if you believe that the pattern of “buying for the special dividend” will play out over the next week and a half, and the shares will rise into the end of next week because people get excited about the payout.

The typical pattern is that stocks which announce a special dividend do rise, with most of that bump happening right after the announcement is made, but sometimes the rise does continue up to the payment date, even if it’s not particularly logical… and the typical pattern is that the stock also falls after the special dividend, often falling more than the dividend amount in the days following as those who bought just for the payout sell their shares… but that the stock does eventually bounce back and recover some of the drop. The dividend was announced on September 15, though shareholders knew it was coming before that without knowing the specifics, and the stock closed at about $17 the day before that news came out, so the shares have not surged dramatically higher based solely on the dividend… and the shares were at about $15 in early August, when the guidance was updated based on continuing operations, but this action has been coming for much longer — the original deal to sell Walden University was made a little over a year ago, when the stock was in recovery from the COVID crash and the shares were at about $12.

Every special dividend payment is a little different… unless you’re going to regularly buy these special dividend stories all the time, and be somewhat disciplined in buying either right around the announcement or at a point of maximum pessimism immediately after the dividend payment, and selling them a few weeks later after the price has hopefully recovered a little bit, you can’t count much on the averages (usually bid up some for the dividend, usually bounce back some after the dividend) working for you in any individual case. Which is why I mostly ignore these unless I’m otherwise interested in the company, I rarely get interested in short-term trading opportunities if I don’t have any interest in building a position in the company for the long term.

Your mileage may vary, but yes, there is a $3,901 payout possible… it’s just that if you buy the shares today, you’re really just getting 40% of your money back a week later, and owning shares of a company that’s worth 40% less. Whether that’s of interest to you should depend either on your desire to try to game the trade over the next few weeks by being nimble and lucky… or your desire to own the company at this valuation.

How does that sound? Ready for your big payout? Not worth the trouble? Let us know with a comment below.