Michaels Splits, Doesn't Fray

In a late August column, Seth Jayson recommended looking for opportunities to pick up shares of craft goods retailer Michaels Stores (NYSE: MIK  ) should any "fire sale" opportunities arise. Following a quarterly earnings release that, while generally upbeat, failed to meet Street estimates, his cautious advice seemed sage. Unfortunately, however, no such fire sale has yet taken place -- quite the opposite, in fact.

After dipping slightly on the earnings news, Michaels' shares have resumed doing what they've done for quite some time: climbing. And last night's announcement -- the company said it would boost its dividend and split its shares two-for-one -- should only help. (The stock rose about 1% in Thursday's session.)

It's difficult to get too excited about the stock split (the company's second since 2001) since Fools know it's really just cutting up the same pie into smaller pieces. The dividend increase, meanwhile, isn't massive. It's raising its quarterly output from $0.12 to $0.14 per share for a yield of 0.95%. For the six months ended July 31, Michaels spent $16.3 million on dividend payments, and the new number would have increased that by less than $3 million. Given that Michaels generated some $56 million in net income (and more than $17 million in free cash flow) over that period, I don't see the increase breaking the bank.

Thing is, though, Michaels doesn't really have to bend over backward to please investors -- not at this point, anyway, especially those who have held on for a while and benefited from the company's thumping of the S&P 500 since our calendars went back to three zeros in the "year" column.

It might seem strange that the stock of a company that sells gingerbread train kits can be such a performer. But consider the position 1,000-store Michaels has built against direct competitors such as Jo-Ann Stores (NYSE: JAS  ) and A.C. Moore (Nasdaq: ACMR  ) as well as broad-liners such as Wal-Mart (NYSE: WMT  ) and others. A quick look at the financials also helps illustrate the sort of business good management can generate even in the unlikeliest of marketplaces.

Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.


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