Successful investing is all about searching for those few good ideas that over time turn into 10-baggers or more. However, you need the patience to find these gems. Recently, I came up with the brilliant idea of finding a few stocks to buy that have paid one or more special dividends in the past 12 months.
In my opinion, special dividends are one of the best examples of efficient capital allocation because it shows me that management understands the ebb and flow of its own cash flows and is more than willing to reward shareholders when the coffers are flush and to hold back when they’re not.
But I wasn’t just looking for stocks to buy that paid a special dividend — I was after those that don’t pay a regular dividend and no formal dividend policy.
Let me warn you in advance, if you try this at home, be prepared for a search so hard it will make the proverbial “needle in a haystack” adventure seem easy by comparison.
So, after an exhaustive search, here are high-performing four stocks to buy for their special dividends.
Stocks to Buy for Their Special Dividends: Amerco (UHAL)
My first pick, Amerco (UHAL), is a stock I recently recommended that trades above $300. Amongst a group of five high-priced stocks, I wanted investors to know that there’s nothing to fear by owning these kinds of stocks.
Although UHAL doesn’t have a formal dividend policy and it distributes free cash to shareholders as it sees fit, you’re in good hands with the people behind U-Haul, America’s self-moving and self-storage specialists.
Its most recent special dividend announcement on March 9 said that it would pay $1 per share on April 21 to those shareholders owning its stock as of April 5.
The first in 2016, Amerco paid out three special dividends last year totaling $5 per share with the payouts coming in March, July and October. Since 2011, UHAL has made $13 in special dividends with no payments of any kind in 2013.
Care to guess how UHAL stock has performed in the past five-plus years?
I’ll give you a hint: More than double the S&P 500. While the index delivered an annualized total return of 11.5% through April 27, UHAL shareholders were treated to a 29.9% return over the same period — with no quarterly dividend to speak of.
Stocks to Buy for Their Special Dividends: Diamond Hill Investment Group, Inc. (DHIL)
My next pick is Diamond Hill Investment Group, Inc. (DHIL), an independent investment management firm based in Columbus, Ohio. In addition to providing both active and passive management for both institutions and individuals, it also provides administrative services such as compliance, treasury and underwriting to mutual fund companies, including its own group of funds.
While DHIL has no formal dividend policy, it has paid a special dividend for eight consecutive years; those payouts totaling $58 per share or about 33% of its current share price. That’s a lot of love to give to shareholders.
It’s no coincidence that as Diamond Hill has been sharing the wealth with investors; its stock’s performance has come along for the ride. On an eight-year winning streak with annual returns of 79%, 20%, and 41%, in 2013, 2014 and 2015, respectively, that record is currently in jeopardy. Year-to-date through April 27, DHIL stock is down 5.9% … well below its asset management peers.
This, in my opinion, presents an opportunity for investors because if you look at its financial reports, you’ll see that both sides of its business are continuing to perform at a very high level.
No special dividends so far in 2016, but those normally get declared annually in the fall.
The final pick is a split decision.
Stocks to Buy for Their Special Dividends: Under Armour Inc (UA) and Facebook Inc (FB)
Under Armour Inc (UA, UA.C) and Facebook Inc (FB) have both announced and/or distributed special dividends in April in the form of Class C non-voting shares to go along with the existing Class A and Class B shares issued by the two companies.
In the beginning of April, UA completed its distribution of Class C non-voting shares to shareholders of record on March 28. The move gave shareholders, Class A and Class B, one Class C share for every share held in the company. In effect, it was a 2-for-1 stock split.
Dual-class share structures are a very touchy subject, but I happen to believe that they work in an investor’s favor when the founder also happens to be a very good CEO.
Kevin Plank is absolutely that and the stock’s performance speaks volumes about the man’s talent. Forget about governance in this instance and think about your pocketbook instead.
You win with Plank. Some other hired gun? Not so much.
Facebook did exactly the same thing Wednesday by announcing the creation of a third class (C) of shares. The proposal won’t be voted on until its annual meeting in June, but if approved, each Class A and Class B share will be worth two new Class C shares.
A one-time special dividend, it’s intended to allow Mark Zuckerberg to maintain control while giving away 99% of his stock to his charitable foundation.
Again, after yesterday’s earnings report, it’s hard to argue with success or his desire to put his wealth to better use.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.