This article is part of our Rising Star Portfolios series.
Last week, I laid out the investment case for one massive hidden dividend. The company I was referring to was National Presto
Today, I'm going to put my money where my mouth is, buying shares for my real-money portfolio.
Why I'm buying
Long story short, National Presto pays out a small, regular dividend each year, equating to a 0.9% dividend yield at today's prices. But counting its special dividend (which increased slightly from the year before), that yield jumps to 7.4%.
The company has a lot of moving parts, and there are definitely risks (which I'll detail below) that could keep it from prolonging its dividend magic, but I like the stock at today's prices -- and I like it even more if the stock falls further.
Before I get to the risks, let me tell you what National Presto does and why I'm buying.
It's probably best known for its "Housewares/Small Appliances" division, which makes items like the SaladShooter, the Pizzazz pizza oven, and the PowerCrisp microwave bacon cooker, all under the Presto brand name. But this division is only a third of total sales.
The "Defense Products" division is the largest, accounting for half of National Presto's sales. It sells ammunition to the Department of Defense and its contractors.
And the remaining sales come from the "Absorbent Products" division, which makes private label adult diapers.
I will let you insert your own pun here combining SaladShooters, ammo, and adult diapers, but this company intrigues me because it seems to be doing right by its shareholders in returning money that it can't invest elsewhere. Further, it's selling for reasonable prices (12 times trailing earnings).
The risks
There are risks with any company, but a small-cap mini-conglomerate that's one-quarter owned by its CEO presents more than most. The company's 10-K does a good job listing risk items, but I want to highlight one in particular.
The chief risk, in my opinion, is that each of the three divisions relies heavily on one customer. A problem in any one of these divisions is enough to be material to National Presto.
Further, if you're primarily interested in the big dividend, you could be sorely disappointed if operational turbulence, a big acquisition, or a change of management heart takes away the special dividend next year (the dividends are paid once a year and were last paid in March).
The takeaway
If you can stomach the risks and are fine being at the mercy of a special dividend, I think National Presto is a good company to look into. If more stable, predictable consumer goods large caps are your thing and you can do without the military aspect, Procter & Gamble
As for me, I'm buying a small position in National Presto for my real-money portfolio today. I'll consider buying more on weakness.
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).
