Sunday, December 16, 2012

More Thoughts About Conrad Industries Special Dividend ($CNRD)

Just some more thoughts about the Conrad Industries special cash dividend of $2 per share. It is unfortunate (a misallocation of capital) that the company paid a dividend instead of buying back more shares.

I suspect that the family must want to pull out some cash before the tax rate goes up. The dividend is still bullish, as the excess cash basically wasn't being counted by the market, so shareholders should get cash without a commensurate stock price decline.

If the family took this opportunity to take out all the cash they wanted, then they'll probably focus on buybacks going forward.


Adib said...

CNRD is also likely to receieve $2-$3 per share in cash from the BP Spill settlement program. So their cash levels will be back. Just that the dividend would have been taxed higher next year..

Alpha Vulture said...

I disagree that it's a misallocation of capital. They can't just buy more stock in a blink of the eye: liquidity is very low and cash is coming in faster than they can spend on share buybacks.

CP said...

They could be accumulating a fairly large number of shares right now.

Average volume this quarter has been around 5k shares/day. Hopefully they were buying during the late October slump.

You're right that it's acceptable to do the dividend if they are simultaneously buying back shares as fast as they can.

However, if the fourth quarter use of cash was a dividend instead of a buyback, then that's inept.

Adib raises a good point about the BP settlement. Maybe they are pretty confident about that and have decided to dividend that money out in advance?