Every once in a while, Wall Street gets it right.

Yesterday, when Winnebago Industries (NYSE:WGO) reported year-on-year declines in sales, profits, and free cash flow for its 2005 fiscal third quarter, I shuddered to think how that famous manic-depressive, Mr. Market, would take the news. I expected a lot of crying, gnashing of teeth, and, of course, a slashed stock price.

Wrong-o. Didn't happen. On the contrary, after seeing Winnebago "beat estimates" by $0.03, Wall Street rewarded the RV king with a 7.6% increase in the share price. It's a rare occurrence, but on this occasion, I find myself in agreement with the professional analysts. Let's review Winnebago's news in detail and see why Wall Street called this one right.

Bad news
Comparing Winnebago's results for the first nine months of fiscal 2005 with the results from the year-ago period, Winnebago saw sales decline by 8.5%, profits by 4%, and free cash flow by 2%.

Good news
As we progress down the list of increasingly important statistics -- from sales, to the profits they result in, to the actual cash generated for the business and its owners -- the damage lessens. In other words, lost sales are having a disproportionately small impact on profits under generally accepted accounting principles (GAAP) and on cash generation. Wonderful.

More good news
So how is Winnebago mitigating the damage? By battening down the hatches and running a tighter ship. Sales fell 8.5%? OK, said Winnebago, and proceeded to slash its general and administrative expenses by 36%. Share price under pressure? Shareholders getting antsy? Well, let's reward them for their patience, said management, and proceeded to buy back 860,000 shares (boosting per-share profits) at an average price far below where the stock stands today -- about $31.40 a stub. Management even went a step further: Confident that its overflowing corporate coffers (containing $114 million in cash and equivalents at last count) would support it, it raised the company's dividend by 29%, in effect paying shareholders to stick with the company through the current hard times.

I don't know about you, but around here at the Fool, we applaud companies that work smarter when times are tough, that recognize value in their stock and buy it back when it's cheap, and that respect their shareholders and share the wealth by increasing dividends. (We even have a newsletter devoted to that last item). So from this Fool's perspective, Winnebago deserved every bit of the applause it received yesterday.

Winnebago's dividend boost was great news -- but the company still doesn't pay nearly the kind of dividend we require before recommending a company in our Motley Fool Income Investor newsletter. If cash is your king, take the next exit to enjoy a free trial of the newsletter, where we'll show you just how well a company can pay you for your investing loyalty.

Fool contributor Rich Smith does not own shares in Winnebago.