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