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

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February 01, 2012 – Comments (6) | RELATED TICKERS: UAN , SXL , GRPN

Here's a fascinating new article that I just came across:

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

This is a trend that I noticed as well, starting with my fantastic investment in CVR Partners (UAN)...if I do say so myself :).  Something have noticed is that the "hot" money from hedge funds, etc... usually chases after trendy IPOs, like those in the tech sector.  This leaves a number of IPOs in less sexy dividend-paying companies relatively unnoticed.  As the article mentions, many of these stocks pay dividends, or distributions, in excess of 7%, 8%, or even 9%.  Typically dividend yields don't begin to show up on stock screens and in places like Yahoo Finance until companies have actually paid a few out.  This leaves a window where savvy investors can pick up shares before they skyrocket as a result of yield hounds.

I saw a similar phenomenon with Sunoco Logistics (SXL), which debuted at under $20/share and is now trading at over $35.

Of course, one shouldn't indiscriminately purchase shares of dividend-paying IPOs, but strong companies in good sectors that have huge initial yields certainly appear to be solid investments.  Collect a huge dividend yield while waiting for Mr. Market to notice it and drive the yield down, and in turn the stock price up.

Interesting stuff.  I'm normally more inclined to short IPOs, as evidenced by my CAPS shorts of Zillow (Z), Tesla Motors (TSLA), Groupon (GRPN), Angie's List (ANGI), Zynga (ZNGA), Pandora (P), and LinkedIn (LNKD).  These aren't necessarily all bad companies (though I'm convinced that Tesla is eventually doomed), heck I even use LinkedIn, but all of them seemed to be overvalued at the time of their IPO or shortly thereafter. 

I'm going to keep an eye out for dividend-paying IPOs in the future and see if anything interesting comes along.

Deej

6 Comments – Post Your Own

#1) On February 01, 2012 at 6:29 PM, Option1307 (29.88) wrote:

Intersting article, nice to see you blogging again. +1.

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#2) On February 01, 2012 at 8:20 PM, BigFatBEAR (29.32) wrote:

I heard FB is going to pay a massive dividend! ;)

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#3) On February 02, 2012 at 11:45 AM, TMFDeej (99.30) wrote:

Thanks Option.

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#4) On February 02, 2012 at 12:07 PM, tdoodler (25.06) wrote:

Couldnt agree more.  I bought QRE (ipo Dec 2010) in RL (they own and acquire oil producing and natural gas properties).  2011dividend was north of 8% and they just raised it 14%.

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#5) On February 02, 2012 at 12:49 PM, Teacherman1 (50.21) wrote:

You can still get DCIX at a good price.

When they report their Q4 results, then hopefully Yahoo Financial, and others will start posting current information about them, and every one can see just how strong their balance sheet is.

Right now, they are going up and down because there is very little trading going on (less than 1% of the outstanding shares) and those are for the most part day traders.

About 75% of the investors are institutional and are in about $7.50.

TEU was a good one short term, but they no longer are.

I feel for those who bought in at $10 plus, because I think they are going to get some bad news when they post their Q4 results.

It was much lower when I was blogging about them, and that would have been the time to buy.

They said they are still going to pay the $0.30 dividend for the next two quarters, but they also said the dividend would be $1.00 for 2012, which implies they will be dropping their dividend to $0.20.

If you (not meaning you Deej, but anyone who may read this) are in at the $10 range, and you have the guts to do so, you might want to "double down" while it is in the $8 range, collect your dividends, then bail out with a much smaller loss.

I sold half my TEU holdings after they paid their dividend last quarter, and between my sell price and the dividend, made about 35% average for the two 25% of position sells.

The only reason I am still holding any, is because I am in at less than they are trading for now, but will likely sell just after the next dividend.

JMO and worth exactly what I am charging for it.

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#6) On February 04, 2012 at 7:44 PM, sikiliza (< 20) wrote:

UAN is a good stock. I own it and can attest to the fact that it's one of the positions that's made me quite happy. Great management, a cost efficient production method and growing demand for global food productivity make UAN a nice medium term hold. I will place CHKR on my watch list and wait for a pull back. I used to own CHK and didn't know that they have IPO'ed a Trust. 

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