“A Bizarre Type of Dividend the SEC Doesn’t Want You to Have”

What are the "5th Payouts" teased by Tom Dyson for his Palm Beach Letter?

Tom Dyson at the Palm Beach Letter has generally been a relatively low-risk, income-focused guy — he used to run the 12% Letter for Stansberry, before starting Palm Beach Letter with Mark Ford a couple years ago, and for a newsletter guy he does relatively little of the “swing for the fences” stuff.

Not that the pitches and promise for his letter aren’t a bit over the top — he’s still part of the Agora family, still using the same copywriters who help turn a search for steady 5-10% returns into “life changing wealth” and “secret” and “rare” investments that “the SEC doesn’t want you to have.”

Just like with his pitch for the “770 Account” that was so popular a few months ago, still being sold as “The Secret Investment Account: How to Fund Your Own Worry-Free, 100% Tax-Free Retirement” — it may work out well for many folks, that pitch for participating whole life insurance that’s adjusted with riders to maximize cash value and participating dividends from mutual insurance companies, but it’s not as simple as the “Fund your retirement” pitch makes us believe after a quick listen. Partly that’s on the reader — we read between the lines to make things seem even better than the copywriter says, because we want a nice, greedy short-cut to wealth… but copywriters are trying to sell you something, not to educate you.

So as with all newsletter pitches, the goal here at Stock Gumshoe is to keep an open mind — the ads are usually ridiculous, the claims that are used to catch your attention are obviously not to be relied upon… but that doesn’t mean the investments or strategies these letters are suggesting aren’t good. Sometimes they are. So shall we see what Dyson is pitching today?

“A Bizarre Type of Dividend the SEC Doesn’t Want You to Have

“The three small companies in this report distribute a rare type of payout that can increase your yield by as much as 586% overnight

“Only .105% of U.S. companies in existence make this distribution. Hard to believe? That’s what we thought. But our investigation into this situation has produced the real story behind this ‘cover-up.'”

So that’s why you would buy this letter after reading the ad — they know about secret, hard-to-find companies that send out “rare” and “covered up” cash payments to investors. Enticing, right? Here’s some more:

“You see, for nearly a decade now, a handful of America’s top-shelf companies have been paying unscheduled ‘5th payouts’ to shareholders.

“They are not ordinary special dividends that pay out sporadically… nor are they regular dividends. Yet they’re up to several times bigger.”


I know many Gumshoe readers are dividend hounds, either because they’re just sensible folks who know that much of the return of the S&P 500 over the last century has been because of reinvested dividends and the power of compounding or just because they are (like so many people now) trying to generate retirement income in a world where money is cheap and unloved, so the idea that there are “secret” dividends out there from companies who are sending out “5th payouts” is compelling indeed (most US dividend-payers issue quarterly payments).

So what are these “several times bigger” dividends?

Well, they are special dividends — but unlike most special dividends, which are one-time events that are tied to some kind of corporate event (like spinning off a business) or are used to reward shareholders or mollify activist investors, what Dyson’s talking about are essentially recurring special dividends — payouts from companies who could afford to pay a much larger quarterly dividend, but have chosen instead to pay out the earnings they don’t need to retain in the form of an annual dividend, typically at the end of their fiscal year.

“You see, for nearly a decade now, a handful of America’s top-shelf companies have been paying unscheduled “5th payouts” to shareholders.

“They are not ordinary special dividends that pay out sporadically… nor are they regular dividends. Yet they’re up to several times bigger.

“Consider one income stock I was looking at…

“It’s a U.S. retailer with an 18-year history of paying out dividends.

“As you know, dividend stocks typically pay out four times per year.

“This company was paying out five times…

“And here’s the kicker…

“The 5th payout was always 3-4 times larger than the other payments—combined.

“If you owned 1,000 shares, you would have deposited an $1,800 check. Just on that 5th payout in 2010….

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“In October the following year, the same company distributed another 5th payout: $2.50 per share….

“The next year, the company paid yet another massive payout: $2.25 per share.

“And the year after? $4.50.”

So that’s the idea — some companies routinely top off their dividends to shareholders with a fifth regular payment. These aren’t typically recorded as part of the annual yield in major finance portals online, so a stock that might actually have paid dividends that tally up to a 10% yield might look, on a quick screen, like it only yields 2%… therefore these are “secret” dividends. Got it?

And, perhaps more importantly, they’re dividends that are more explicitly tied to the company’s performance for that year — all dividends should be tied to the company’s actual cash flow and earnings, so that dividends don’t rise when those inputs aren’t rising, but in practice almost every company that pays a regular quarterly dividend feels strong pressure to either keep it steady or, preferably, raise the dividend at least once a year. Theoretically, these “special dividend” payers think, investors will be less likely to punish them if the “extra” dividend is cut or fails to grow in the future — that’s true for one-time payouts but when it becomes a habit, all bets are off. In practice, anything that a company does for a couple years in a row — even if it’s not technically a “regular” thing — becomes an investor expectation.

What, then, are the actual stocks being touted by Palm Beach Letter?

Well, this retailer is actually the first one, but they tease that the special report includes “bizarre dividend” recommendations for three companies… we’ll see if we can name ’em all. Some more clues:

“… a handful of big investors have been taking advantage of this retailer’s huge, unscheduled payouts…

“Including Dennis Nelson, a multimillionaire investor in the Midwest…

“And the Vanguard Group—one of the most powerful financial entities in the world…

“But because this information is typically hard to find on the major financial sites… and because it’s not even being reported on the typical legal documents from the SEC…

“Most regular investors have no clue this company and its payouts exist.”

Well, you need no longer suffer in the absence of knowledge — this retailer with a “5th payout” is The Buckle (BKE), a stock we’ve mentioned at least once or twice in these parts. It’s been a growth darling for quite a few years now as it expands its western/midwestern retail style to malls around the country, and they do indeed have a multimillionaire investor named Dennis Nelson on their shareholder rolls (he’s also the CEO, so it’s not a big surprise). They’re headquartered in Nebraska and have about 450 stores now, all selling casual branded apparel with a significant focus on jeans, including their own private label BKE denim. They are still very much concentrated in the Central and Mountain time zones, but have gradually moved out of their Texas/Midwest strongholds over the years — though fairly new to investors’ radar screens, the company has been public for more than 20 years.

And yes, their dividend yield is misleading on most financial portals like Yahoo Finance or Bloomberg, and in most brokerage information screens, where it is reported to have a 88 cent annual dividend which, based on the current share price of about $48, means it yields about 1.9%. That’s more or less accurate when it comes to the regular quarterly dividend, which has been growing and is now at 22 cents per quarter… but it doesn’t reflect the annual special dividends that they have consistently paid since 2008.

There’s reason to look more closely at Buckle, I imagine — the “fifth payout” was far lower this year than it was in the past several years, around $1.20 versus the $4.50+ they paid out in late 2012 (that one may have been unusually high because of fears of the rising dividend tax — that’s a guess, I haven’t checked, but this payment was also substantially lower than the 2010 or 2011 “specials”). It still looks like a pretty reasonably valued company based on the trailing PE ratio of about 14, and they have a lot of potential growth if they want to invest in continuing to expand their footprint and share count — but though they did not show revenue or earnings growth last year…

… and there’s also a very high (and growing) short p