Believe it or not, it's still possible for opportunities to hide in plain sight.
Even when you can get all the pertinent, public information on a stock with a few mouse clicks, you can still miss amazing stocks. Actually, sometimes all this technological ease actually helps a company fly under the radar.
Today, I'll share one of these stocks -- and reveal the massive dividend it's hiding from the world.
First, some background
Even if its dividend weren't disguised, investors might still ignore this $750 million company, a quirky mini-conglomerate out of Eau Claire, Wisc. One division makes kitchenware for sale at Wal-Mart
That's a pretty eclectic mix of diversification, but note that each division exists at the mercy of one primary customer. Wal-Mart accounted for about one-third of the kitchenware division's sales (or 11% of total company sales) last year; the defense division (and hence the DOD and its contractors) accounts for half of the company's sales; the adult diaper division sells to only one customer -- an outfit called Medline Industries.
The company revealed
The name of this little company with a massive, hidden dividend is National Presto
When you look at its Yahoo! Finance profile, you'll see a tiny 0.9% dividend yield. And so does everyone else.
But here's the secret -- National Presto really has a 7.6% dividend yield!
True, the company pays out a small, regular annual dividend each year -- the 0.9% yield you see on Yahoo! Finance. Only those who dig deeper notice that National Presto has gotten in the habit of supplementing its small annual dividend with a massive special dividend. And though special dividends don't count for Yahoo!'s purposes, they do for ours!
National Presto holds no debt, sits on a nice cash balance, and pumps out free cash flow each year. Given this, it could simply bump up its regular dividend payment. But I think the company's being very wise. By only promising a small, regular dividend, it keeps its financial flexibility -- the better to weather tough times or fund an opportune acquisition.
Can the dividend last?
With three divisions, each reliant on a major customer and each with its own set of risks, it's not hard to envision National Presto experiencing some unforeseen turbulence.
For example, its latest major five-year ammunition contract with the Department of Defense (signed last year) is on a fixed-price basis, leaving National Presto is on the hook for any price overruns. Its recent sales have gotten a supplementary boost from increased defense spending for operations in Iraq and Afghanistan. And the defense industry as a whole is nervous about possible budget cuts. See the sub-10 P/E ratios of Northrop Grumman
It's not hard to envision ups and downs in the other divisions, either.
All that said, I like what I'm seeing here. The company is wisely paying out excess cash flows to its shareholders when it doesn't have a better use for that money. I believe it will continue to do so, because its CEO owns almost a quarter of the company -- and hence gets almost a quarter of the dividend payouts.
After backing out cash, National Presto sells for just 9.4 times earnings (15.0 times free cash flow). With its trailing 7.6% dividend yield and the likelihood of more to come, National Presto is one massive, hidden dividend stock that may be worth finding.
Anand Chokkavelu owns shares of L-3 Communications, Lockheed Martin, and Northrop Grumman. He owns one massive, hidden collection of sophomoric comedies. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Wal-Mart Stores is a Motley Fool Inside Value recommendation. Wal-Mart Stores is a Motley Fool Global Gains pick. Wal-Mart Stores is a Motley Fool Income Investor pick. Motley Fool Options has recommended a diagonal call position on Wal-Mart Stores. The Fool owns shares of National Presto Industries, L-3 Communications Holdings, Lockheed Martin, Northrop Grumman, and Wal-Mart Stores. Alpha Newsletter Account, LLC owns shares of L-3 Communications Holdings. Try any of our Foolish newsletter services free for 30 days.