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We can agree that a 5% dividend yield is a respectable dividend yield, given the many low-yield alternatives.
We can also agree that a 5% dividend yield achieved in one day is even more respectable.
When most investors refer to dividend yield, they refer to the yield generated over a year. To realize high-yield income immediately is more valuable than to realize it over the course of 365 days. Money, after all, has time value.
Now, if you can take that one-day 5% dividend yield and amplify it into a 21% return on your investment, all the better. If you can amplify it in just over three months, you’re in hog heaven.
We recently found hog heaven. I offer a real-world example.
China Distance Education Holdings (NYSE: DL) declared a $0.43-per-share special dividend on Nov. 29. The dividend appears insignificant at first glance. It could be any blue-chip stock’s quarterly dividend. Based on our $8.60 entry price, though, the dividend was significant. It generated a 5% dividend yield.
Good things can come in small packages.
CDEH was on the low end of the market-cap spectrum. At the time the special dividend was declared, its equity market cap was $260 million.
The dividend also signaled better days ahead. I liked the special dividend because I liked the company behind the special dividend. I thought that CDEH was worth a special-dividend trade.
CDEH is a leading provider of online education and value-added services for professionals and corporations in China. Many Chinese are on the move. Many of them want to increase their marketability. CDEH offers the education to fuel growing aspirations.
In turn, customer demand fuels revenue growth.
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CDEH’s revenue grows at a double-digit annual rate. Annual revenue grew to $131 million for fiscal-year 2017. Revenue had grown at a 16.5% average annual rate over the past four years.
Earnings growth, though, had failed to maintain a similar pace. EPS, at $0.53 for the fiscal year, was down year over year. Total enrollments were also down. Many investors were down on CDEH.
I was up because we had a mitigating factor: The drop — in earnings and total enrollments — was the result of CDEH dropping a particular accounting certification course. I saw a one-off event.
The good news was that other education offerings were picking up the slack. Excluding enrollments associated with the erstwhile account course, CDEH’s fourth-quarter total enrollments increased by 28.2% year over year.
CDEH was out of favor with investors. Its shares were down roughly 25% year to date when I entered a special-dividend trade (click for details).
Though CDEH had difficulty generating earnings growth, it easily generated cash growth. Cash receipts from online course registration were $109.5 million in fiscal-year 2017, a 12.5% increase from fiscal-year 2016.
I liked CDEH. It was an established company. Its shares had traded on the NYSE since 2008. It had the cash to pay the dividend. It was financially sound.
CDEH had a history of paying special dividends. More important, the dividends had frequently led to profitable trade opportunities. I saw a profitable trade opportunity with CDEH’s latest special dividend.
Reality materialized from opportunity last week.
We closed our CDEH special-dividend trade on March 7. The dividend combined with share-price appreciation enabled us to realize a 21% return in 98 days, or just over three months.
CDEH is one of many special dividends we’ve been able to amplify into greater total returns.
The right special dividend, like CDEH’s, offers immediate high-yield income. It also sets the stage for future share-price appreciation. It can amplify total return.
But the “right” special dividend is the exception, not the rule. Many special dividends compress total return, not amplify it.
Let me set the stage for investing in the “right” special dividends to amplify your income and total return.
Ian Wyatt and I will host a free live event today at 12 p.m. EDT. You’ll learn how to find and trade the right special dividends for income and profit.
Click HERE now to register. You have nothing to lose except the opportunity to invest in dividend stocks for income and profit as you never have before.