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Another Dividend-Paying IPO Outperforms the Market



April 02, 2012 – Comments (4) | RELATED TICKERS: RNDY.DL , WFM


I was in the middle of writing a post about this stock a couple of days ago when my computer had a nuclear meltdown. I literally had to reinstall windows from scratch. It reminded me why I exclusively use Apple products at home :).

As I have mentioned numerous times in the past, I have been focusing on the significant outperformance of dividend-paying IPOs lately.  A grocery chain named Roundy's (RNDY) went public right about the time that I started keeping my eyes open for dividend-paying IPOs. If I recall correctly, at the time I passed on it for three reasons:

1) I put the grocery industry in the same bucket as the airline and shipping industries. Yes, like with Whole Foods (WFM) money can be made there from time to time, but that usually proves to be the exception rather than the rule.

2) I think that RNDY has a tremendous mountain of debt, which I never like to see.

3) I believe that its payout ratio for this large dividend was slightly on the high side.

Of course, RNDY has risen something like 20% since I decided to pass on it ;). That almost makes a case for indiscriminately purchasing dividend-paying IPOs regardless of the fundamentals :). They always seem to do least lately they have.

A fellow Fool, TMFScarletGray, recently provided me with a link to an article about the company written by Frank Voisin, who usually writes good stuff.  Here's the link for anyone who's interested:

Roundy’s Inc: An Undervalued and Undiscovered High Yielder

The catalysts that are mentioned in the article (and I love articles that break that sort of thing out) are right up my alley and are exactly what I look for in stocks, especially an increasing dividend that Mr. Market doesn't seem to be aware of yet, again though I passed both here in CAPS and in real-life for the concerns that I mentioned earlier.


Dividend initiation – We expect the company to begin to pay its 23c dividend in May. This equates to a 9% yield. Since RNDY has not publicly declared it yet (or even mentioned it in its PR), many people are unaware of the dividend.

Initiation of analyst coverage from the 7 underwriters including CSFB and JPM – Analysts are currently restricted but can begin to initiate coverage around the middle of March.

Increased investor awareness – The stock is now trading at its 52 week high so it will likely be on more potential investors’ radar screens. In addition, the company officially gave guidance last Thursday so now it is easier for investors to understand the value created by the IPO’s debt refinancing. 

Anyhow, this will be an interesting stock to follow.  On an unrelated note, I thought that I'd mention that I am increasingly making an effort to give credit for ideas where credit is due in my blog posts, such as my references to TMFScarletGray and Frank Voisin in this message.  I just think that it is important to acknowledge people for their hard work when they come up with an idea and even better are kind enough to share it with others.

My newfound insistance on giving credit to others was cemented this weekend when I saw the HBO documentary "The Real Rocky" about how Sylvester Stalone literally stole the entire idea for Rocky from the life of a boxer named Chuck Wepner without paying him a single dime until he was finally sued and forced to settle.  The Rocky franchise made an estimated Billion dollars worldwide, yet they couldn't throw Wepner even a few million bucks for his contribution to the film. 

Giving credit where credit is due is the right thing to do.  Heck investing is the only field where you can literally copy off of the tests of super geniuses and not only is it perfectly legal, but moral as well.  Why not source where your ideas came from?  There's no bonus points for difficulty or the amount of hours that you put into finding an idea.  Why not take them from somewhere else?

Thanks for reading everyone and have a great evening!


4 Comments – Post Your Own

#1) On April 03, 2012 at 10:37 AM, rfaramir (28.72) wrote:

+1 rec for "exclusively use Apple products at home", and for giving credit where due. The grocery business is less exciting, but hey, that makes it a candidate for finding Hidden Gems.

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#2) On April 03, 2012 at 1:13 PM, ryanalexanderson (< 20) wrote:

Hi Deej, 

Do you have a suggested recent all-encompassing summary article showing all of your favourite dividend-paying IPO investigations?




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#3) On April 03, 2012 at 1:52 PM, TMFDeej (97.63) wrote:

Hey Ryan.  Here's my first two articles on the subject:

Secrets of Dividend Paying IPOs - Wall Street’s Hot New Odd Couple

Proof of a market-crushing investment strategy?


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#4) On April 13, 2012 at 8:43 PM, constructive (99.97) wrote:

Deej, check out RPAI and SIR, two new REIT IPOs. 

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