The S&A Digest: Grabbing Those Special Dividends

Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)

As of 07/01/2013

Kosher Hooters?... SAC lines up against Icahn's WCI bid... Contrarian enough to buy Detroit?... Market top in Calgary... What 'quant' means...

After several months of testing, we finally launched our newest research service yesterday – S&A Dividend Grabber. We'll follow all of the upcoming special dividend situations... plus spinoffs, mergers, and takeovers. And charter subscribers only pay half price.

Rearward-looking signs of the top: Investors added $110 billion to stock and bond mutual funds during the first two months of 2007. That is the largest amount ever invested in the January-February period. While we didn't know this at the time, we knew something strange was happening – the amount of bullish sentiment was overwhelming. Hopefully – as Sjuggerud, Jeff Clark, and I recommended – you took some cards off the table in February.

Big money is fighting over Miami... mega-hedge fund SAC Capital Advisors announced its 9.5% stake in Inside Strategist pick WCI, a major Florida landholder. As you know, Carl Icahn is attempting to take the company private for $22 per share. With SAC in the mix, the price is going to move higher.

China today approved four foreign banks to begin local operations. The four banks approved for the deal were 12% Letter pick Citigroup, HSBC, Standard Chartered, and Bank of East Asia.

The restaurant chain Hooters will open its first location in Israel. Ofer Ahiraz, who purchased the franchise, will open in Tel Aviv, Israel's most cosmopolitan city. He says that the restaurant will not be near any religious centers and it will NOT be kosher.

Bear Stearns has partnered with Huang Guangyu, China's richest man, to set up a $500 million buyout fund for Chinese retailers. If you're offered a stake in this private venture fund, turn it down. Dozens of Wall Street banks and hedge funds have tried over the last 10 years to start funds to buy small, private Chinese companies, link them together, and then take them public. None has succeeded. To learn why, read Mr. China, a great business memoir by Tim Clissold. Tim was the chief operating officer of one of Wall Street's first China venture funds.

Consider yourself a contrarian, eh? Most people do. (Get it?) Well, here's a real test... Houses in Detroit are now selling for less than new cars. Turnkey homes are selling for less than $29,000. One frequently heard sales pitch: "The lumber in the house is worth more than the price."

The news about Detroit's housing prices makes me think about the differences between our top analysts here at S&A Investment Research...

I'd never recommend those houses (or real estate in Detroit) because they’re garbage. Detroit real estate would take too much time to understand, and there's no way to invest safely. My readers would think I'd lost my mind if I wrote about it.

Ferris, meanwhile, would go to the county tax office, figure out where the best-quality homes were built, and recommend buying up whole blocks. More than a few readers would do it. They'd make a fortune when, in 2012, the car manufacturers have all been restructured and are making billions each year.

Sjuggerud would find an Icelandic salvage company that's buying the houses for their timber. He'd buy the company's principal-protected, Euro-dominated bonds through a bank in Tokyo.

Jeff Clark would roll his eyes, throw up his hands, and buy puts on all the mortgage companies with Detroit exposure.

Our readers would then send in hundreds of e-mails like this:

"I pay you a lot of money for financial advice, but all I get from you is contradictory recommendations and mumbo jumbo. Look, this month Dan Ferris suggested I go to Detroit and buy houses, while, at the same time, your options guys (Jeff Clark) was recommending I buy put options on Detroit's mortgage bankers! What gives? Oh, by the way, where can I buy Steve's recommended bond – the Icelandic Detroit-Timber Fund?" – John Q Subscriber

Best line at my friend Marco's wedding in Coconut Grove last week: The maid of honor was toasting the groom, showering him with the typical praise you hear at these events. "When I first met Marco... blah, blah, blah. Marco is smart, blah, blah, blah. Marco is generous, blah, blah, blah." Finally a groomsman couldn't take anymore... "What's this guy's last name?"

New highs: Enterprise Products (EPD), Oneok (OKE).

Your letters have kept us company while we're on the road in Mexico. We received one letter so filled with curses we had a hard time deciphering what it meant (see below). By the way, the "I dare you to print this" really isn't necessary. The only thing we fear is apathy. Send your letters – sans curse words, please – here: feedback@stansberryresearch.com.

"I'll be holding you to your promise of a full refund when I stop being able to pick out the gems from the constant stream of [expletive] flowing out of your laptop. If it wasn't for your A team – who we all respect – I would have bailed already... [Expletive] you, Porter. P.S. Prove you aren't a coward as well as an [expletive] by printing this in the Digest. I dare you." – Alliance subscriber Andrew Dartmouth

Porter comment: We've long suspected a certain percentage of folks who sign up for our products have no real intention of paying for them. They get all of our information... then ask for their money back. Still, we're impressed with the bravado of a subscriber who'd announce his fraudulent intentions from the start. We, of course, reserve the right to "pre-fund" instead of "refund" customers we have reason to believe aren't acting in good faith.

"As an investment advisor, my impression of your service up to this point is that you are just a mass-marketing firm. Do you have anything good to offer?" – Paid-up subscriber Gary Barker

Porter comment: Visit our website: www.stansberryresearch.com. Use your subscriber password to review the materials you've signed up to receive. Look at the recommendations. Look at the track record. If you're not impressed, give us a call. We're always happy to refund your subscription(s) and part as friends. Not too many "marketing" firms stay in business with that policy.

"Calgary (my home town) is getting a Bentley dealership. A possible sign of a market top?" – Paid-up subscriber Stephen Borsy

Porter comment: Definitely.

"Anyone who has taken a high school physics course knows that when ice melts to water, the density increases and the volume decreases. Therefore, if the polar ice caps melt, sea level will decrease as the overall volume will decrease. Some global warming alarmists are predicting a 20-foot rise in sea level. You may want to build your home in South America a bit closer to the water. Keep up the irreverence." – Paid-up subscriber William Blake

"A gamblers twist on the HMA dividend grab: Bought 5,000 shares at $20.02 and 5,000 more on margin. Received the dividend and bought 10,000 more shares at $10.17. So now you only have to be half right for me to get my initial investment back. Question: Aren't spin-offs such as the Altria/Kraft deal historically as beneficial as the dividend grabs?" – Paid-up subscriber Jim Speed

Porter comment: Historically, spin-offs are "market-beating" events, like special dividends, if you buy the spun-off company at the correct time. And we will be covering spin-offs in our new publication, S&A Dividend Grabber.

"If ya'll are ever sick in Meridian MS (halfway between New Orleans and Birmingham) give me a call. Fam prac doc. Subscrib forever." – Paid-up subscriber James Matthews

Porter comment: That's a very generous offer... and you never know, I might just take you up on it.

"So OK, I know you're just waiting for someone to ask. What does 'Quant' mean? And I've had a couple of drinks. After all, it IS Friday. But I'm NOT drunk." – Paid-up subscriber JEP

Porter comment: A "quant" – short for "quantitative analyst" – is an investor who studies correlations in the market and attempts to find statistically significant indicators of market activity. He doesn't buy things solely for their intrinsic value or for their growth potential. Instead, a quant buys securities because there's a statistical likelihood of a profitable future change in prices, based on other factors in the market. (See today's essay for a take on dividend grabs from our resident quant, Ian Davis.)

Regards,

Porter Stansberry

Playa del Carmen, Mexico

Grabbing Those Special Dividends

After paying out a special dividend, stocks almost always rebound. So the theory goes, anyway.

I recently performed a small-scale study on companies that had paid out special dividends in order to see if the numbers agreed with the theory.

In almost every case I examined, the answer was yes.

Specifically, I reviewed 23 special dividend payments from 11 different S&P 500 companies that occurred within the last 10 years. In all cases, the stocks rebounded to their previous levels.

On average, it took 4.55 months for these rebounds to occur. The median time was three months and the longest time it took was about 2.1 years (after Microsoft’s November 2004 special dividend).

More Proof Coming Up

Currently, I'm working on a much larger-scale study to add more weight to my findings. I've collected dividend information on 952 companies going back, in some cases, as much as 33 years. Within this pool of data, I've been able to pinpoint 320 occurrences of special dividends being paid out to shareholders.

I expect to be finished crunching the numbers on this exciting new study by Monday, when I'll share my conclusions in The Digest.

Good investing,

Ian Davis

March 20, 2007

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