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National Beverage Declares Special Dividend. What Now?


Should you take the money and run now that the stock is up 18% since we anticipated the special dividend?

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.
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