Where I'm Looking For One-Time Special Dividends

Nathan Slaughter's picture

Monday, December 15, 2014 - 10:00am

by Nathan Slaughter

October 17th was a good day for investors. The Dow, reeling from a six-day slide, rebounded with a powerful 250-point gain.

But for one small group of stockholders it was an especially great day.

Shares of Equinix, Inc. (Nasdaq: EQIX) rocketed more than $16 per share, hitting $208.59 in heavy trading.

This pop was triggered by the declaration of a dividend... but not just any dividend. 

The board approved a one-time special dividend payment of $7.57 per share in connection with the firm's restructuring into a real estate investment trust (REIT).

This isn't the only cash windfall that EQIX shareholders will be receiving. The company, which owns large data centers, is planning another special dividend in 2015 that will be even larger.

It's no wonder why the shares continue to attract attention, up almost 10% since the original announcement.

This is the type of situation that investors love to be involved with. In fact, subscribers of my premium advisory service High-Yield Investing were able to cash in from the same exact scenario recently with a stock I recommended in September.

The company, Iron Mountain, Inc. (NYSE: IRM), was planning to convert from an ordinary corporation to a REIT, which, similar to Equinix, requires the firm to dish out its retained profits to shareholders.

In total, the company was sitting on $700 million, enough to disburse $3.61 per share to every stockholder.

But that's not all.

Because the new restructuring change was retroactive to the beginning of the year, Iron Mountain will also be paying a "catch-up" payment of $0.25 per share next week. And that's in addition to the regular fourth-quarter dividend of $0.475.

So between October 15 and December 31, IRM stockholders will have received a series of payments totaling $4.82 per share, or 13% of the share price.

After adding IRM to my portfolio a little more than two months ago, it's already up over 16%.

I don't know about you, but these types of opportunities have me asking one question:

Where do I find the next company rewarding shareholders with a juicy dividend?

For starters, I'm not looking to invest in any random company giving away cash.

Though I'll happily take the short-term pop that comes as investors line up to capture a special dividend, that's not what High-Yield Investing is about.

First and foremost, I'm investing in quality businesses.

Of course, that's the case with any stock in my portfolio, but most only pay a regular dividend. Some companies, however, go above and beyond -- paying regular dividends each quarter as well as periodic "bonus payments."

And that's a key distinction. I'm not necessarily interested in companies that make a special distribution once in a blue moon, but those that adopted a standard practice of distributing excess cash each and every year.

After all, this policy reveals two important truths:

1) The business is routinely generating surplus earnings, and that's always a good thing.

2) The shareholder-friendly management team is committed to sharing it.

Sadly, most investors don't take notice.

But I made it a point to dig deeper, and capitalize on these historic cash returns to shareholders. I created what I call the "High-Yield Investing Special Dividend-Payer Index." After back testing the strategy over the past five years, I had to do a double take -- the results were better than anything I could've anticipated.

The index posted a massive 209% return versus the S&P 500's 151%. In July, I made it official and revealed the custom index of serial dividend payers, adding a brand new section to the newsletter.

By definition, these one-time payments are rather unpredictable, so we don't know from month-to-month which companies will be featured. But I've always got my eyes open for intriguing situations.

So why am I telling you about all of this?

Well, most special dividend payers start writing checks toward the end of the year -- this is the busy season. Over the past few weeks, I've been combing the markets for any and all special dividend announcement and have encountered no less than thirty, with more coming in daily.

In the December edition of High-Yield Investing I spotlighted two of the most promising investments. These aren't some cut-rate, high-risk companies. Again, I'm only looking for the highest-quality businesses.

I can't speak too much about the business of the first company out of fairness to my paid subscribers. I can tell you, however, that the company benefited from some of this years' blockbuster films and sports a 4.1% dividend yield.

The other special dividend payer has been on my radar for quite some time. Between dividend payments and share buybacks, the company dished out $1.6 billion to investors through the first three quarters of 2014.

I invite you to check out my premium advisory service, High-Yield Investing, to get the names of these two special dividend paying powerhouses. I'm very excited about this new section of my newsletter focusing on the highest quality, consistent dividend payers. I've received a tremendous response from my readers, and to keep up with the demand, I'll be focusing much more on this segment moving forward. If you'd like to be in front of the next big special dividend, click here.

Nathan Slaughter does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.