Seaboard (NYSE:SEB) isn’t afraid to do things a little differently.
For instance, SEB normally pays out a $3 dividend annually. However, at the end of 2012, to save shareholders a little tax, it prepaid the annual dividend for the years 2013 through 2016. The $12 dividend prepayment worked out to a yield of approximately 5%. But remember, unless there’s a special dividend in the next four years, that’s it on the dividend front.
This leaves share repurchases as the only other way to reward shareholders.
In the past three years, Seaboard has repurchased $66.8 million of its stock at an average price of $1,708.53 per share. That’s a 66% return on its investment — or 410 basis points better than the SPDR S&P 500 (NYSE:SPY) — on an annualized basis. Not bad.
It’s tempting to say Seaboard shouldn’t buy more shares because they’re within 2% of an all-time high. However, if you flip Seaboard’s P/E on its ear, you’ll see that $1 of share price is generating a little more than 8 cents in earnings. That’s an earnings yield of 8.3%, which compares favorably with competitors like Smithfield Foods (NYSE:SFD), Hormel Foods (NYSE:HRL) and ConAgra Foods (NYSE:CAG), whose earnings yields averaged together is 5%. Seaboard might be hitting a ceiling, but it’s just as likely that it’s ready to blow through it.
Seaboard has a four-year window in which to utilize buybacks at the expense of dividends. In the past three years, it has averaged $22 million in share repurchases annually. Seaboard can do much better. It finished 2012 with net cash of $56 million and free cash flow of $103 million. Given SEB won’t have any dividend payments for a while, I think it’s very likely that the company will accelerate its share repurchases in 2013 and beyond.
Look for Seaboard to buy back at least $50 million of its stock this year and in subsequent years.