Knobias Clip Report (04-10-2008)
Submitted By Knobias ClipReport
CALM: Announce New Dividend Policy; Shares Shed Over 5.5%
Thursday’s session saw stocks unexpectedly rise following a deluge of disappointing same store sales numbers. The lone rouge was Wal-Mart who saw a .7% gain in year over year sales numbers for the month of March which was at the low end of their guidance. The increase has been deemed a textbook effect from rising prices and lowered real income. Consumers seem to have shifted from high end and middle tier retailers to more affordable discount retailers in an attempt to lessen the impact from rising energy and food prices on their budgets.
Bernanke was also in the news after answering questions in an open forum. One of the most noted quotes regarded how the current situation is similar to the Great Depression but would have different outcomes since the Fed is much more proactive in its approach to dealing with problem areas in the market.
One name in the small cap space which piqued the interest of many was Cal-Maine Foods Inc. (CALM). It is the largest shell egg producer in the United States.
The name recently reported earnings for their fiscal third quarter. Net sales were $278.0 million compared with net sales of $175.2 million for the same quarter of fiscal 2007. Net income was reported at $57.2 million, or $2.41 per basic share, for the third quarter of fiscal 2008 compared with net income of $17.4 million, or $0.74 per basic share, for the third quarter of fiscal 2007.
Fred Adams, chairman and chief executive officer of Cal-Maine Foods, Inc., stated in the release, “We are very pleased with the strong results for the third quarter of fiscal 2008, reflecting record high egg prices. All of our operations ran smoothly, and we were able to take full advantage of the favorable economics in our industry. Demand was strong for eggs in both the retail and food service segments and demand was also good for shell eggs used to produce liquid, frozen, and dried egg products. Even with the higher prices, eggs still represent a good value to the consumer compared with other foods. Egg demand for the Easter holiday was also strong. The egg industry had a good inventory clean-up, and we are off to a solid start for our final quarter of the year. “
Adams did note that feed costs continued to be high and volatile and further noted that egg industry projections for production in the year ahead were expected to be similar to 2007 levels.
The Company announced on Thursday that it will commence its new dividend policy for the third quarter of 2008. The new variable rate policy will pay an amount equal to one third of the Company quarterly income. For this past quarter, that dividend comes to approximately $.807 per share to holders of its common stock.
The dividend just this quarter represents a 2.8% yield on the stock which is priced at $28.50. Assuming the levels of production and the levels of income revert back to 2007 levels, the dividend yield might be quite enticing to some. Adding this quarter’s net income of $57.2 million with the 3 quarters of 2007’s net income leaves net income at $99.3 million. Multiplying by a third and dividing by the number outstanding would give each holder a total dividend for the year of $1.395 which insinuates a 4.895% dividend yield using a $28.50 stock price and assuming profit levels fall directly back to 2007 levels.
With a dividend yield which that is much higher than many blue chippers such as GE and any rate given by a bank for savings accounts, the name could certainly be one to follow over the coming months. Investors would be wise to watch.
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