In my November 9, 2012 article
on National Beverage
(NASDAQ:FIZZ), I noted that the company has an outstanding record of creating value for long-term shareholders, and that it was highly likely that a special dividend would be declared before 2013.
I wanted to provide a brief update, as the special dividend we anticipated was declared on November 23, (which for me, was a slightly early birthday present!), and the exact dividend amount of $2.55 was released November 29.
Let’s check out the impact this announcement had on National Beverage’s ($800 million in market cap) stock price:
The stock price of National Beverage (+15% on the day of the announcement) now significantly reflects the release of the special dividend to shareholders. This significant short-term gain raises the question: Is the original National Beverage article now best viewed as a short-term trading recommendation?
Before I answer this, I want to review some additional statements the CEO made in the original press release (November 23) in addition to other statements made on Thursady (November 29).
Here are CEO Nick A. Caporella’s statements from November 23:
"Our Board views itself as ‘Guardians' of the shareholders and, as such, will continue to explore all remedies to enhance shareholder values. The range of distribution, while protecting the integrity of our balance sheet, are shareholder values that we will not compromise."
"Can the walls of a Fortress Balance Sheet be astute talent or dynamic creative and insure the same Philosophical Security to the investor? Does shareholder equity have a significant effect on a company's ability to create, innovate and make profits? Or . . . should it be the Idea — the generation of Cash Flow and the magnet that attracts genius to the Team . . . that comprise the real granite walls of the Fortress . . . on the Fortress Balance Sheet?"
"Is tomorrow's Enterprise Value determined by the brilliance of the idea, management's creativity and the magnitude of free cash flow? I certainly hope so . . ."
"Confusion, upset, dilemma, change, challenge . . . All are provocateurs for the Opportunistic and the Innovator! The benefactors are those who engage in novel thought, for they rest upon — Excellence! We are effervescently engaged — We are National Beverage Corp.! Just part of our DNA . . ."
The above statements make clear that Caporella has considered the important issues. The first priority of any financial decision (from an owner’s perspective) is to support the ongoing value-creating activities of the business. It is critical that financial decisions not compromise owner’s value over the long term for the sake of a short-term gain.
Caporella then goes on to contemplate the true nature of business value. It is a fascinating question: Does a business's value and strength come simply from asset and balance sheet items, or is value primarily found in the “fortress” of intangible items like creativity, innovation, and the ability to create future cash flows?
From my perspective the issue is clear. An operating business does need a sound financial base, but the real business value lies in the proprietary “non-tangible” items that make it special and unique. It is these qualities that allow for an above-average return on investment. What about the value of a special dividend? To some it seems illogical that simply taking money off of the balance sheet (or using leverage to partially fund a dividend) and returning it to investors would create value. For those interested in my analysis of how this can at times create value, click here
The press statement released November 29 contains some important additional color on the special dividend situation. I have pulled out the most pertinent facts:
The record date has been moved to the close of business December 7 (with payout on February 1, 2013).
If the need arises, the majority shareholder has committed to providing additional equity, which will provide a significant safeguard to the balance sheet
The dividend will for the time being be financed with credit facilities currently in place, rather than long term debt
An increase in the float of National Beverage stock could potentially increase its valuation down the road. This is because (due to the concentrated ownership) the float for the stock is very small. This makes it difficult for institutions to purchase as much of the company as they would perhaps like to own. When I see cutting edge hedge funds such as Renaissance Technologies on the institutional ownership roster, it is easy to surmise that there will be demand if available float increases.
With the Federal Reserve
suggesting that short-term rates will be held low for an extended period of time, National Beverage should have adequate time to either pay most of the credit facility down, or lock in favorable long-term interest rates.
I believe National Beverage will continue to create value in the future and is still reasonably priced. It has a solid portfolio of brands and an “owner focused” management team with a rock-solid track record of creating value. Indeed, Mr. Caporella’s enthusiasm for future opportunities is contagious. As such, the long term recommendation contained in the prior article still stands.
Current National Beverage strategy:
Buy or add to position on dips and hold for the long term.
How will l be celebrating the “early birthday present” from National Beverage? With a tall glass of the company's Lacroix “Pure” flavor sparkling water on ice.
Nat Stewart runs the trading-strategy website www.nastrading.com. The site’s mission: “Help traders capture explosive moves in the forex, futures, and stock markets.”