Presto's Special Dividend Coming to an Investor Near You March 15

By j.a. graham - March 1, 2012 | Tickers: EXPD, NPK, NOC, PG | 0 Comments

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National Presto Industries (NYSE: NPK) is a company that defies categorization. Analysts continually want to call them a defense company and compare them to companies like Northrop Grumman (NYSE: NOC) that makes drones, lasers, surveillance equipment and defense electronics (market cap of $15 billion) or giant Proctor & Gamble (NYSE: PG) in the consumer products segment with its $186 billion market cap. NPK has one division that makes ammunition amounting to 50% of revenue and  that shares space with popcorn poppers, frying pans and adult diapers. With a market cap of only $595 million, NPK is no PG or Northrup but a company that goes its own way oblivious of Wall Street's attempts to box it in a comfy category.

Its claim to fame the past few years is the high dividend yield rather than as an investment in a high growth stock with huge updside share privce apreciation. While the ordinary dividend is only $1.00 per year, NPK has been sharing most of its extra cash with shareholders in a special dividend for years.

Growth and the special dividend

The dividend will be paid again this year, but is down significantly from last year's dollar amount. NPK’s business has been in decline for the past couple of years, making it difficult to continue the dividend amounts of past years.

 Combined annual growth

For the full year 2011, growth slowed even more and revenue decreased 10% with net down 25%. With an EPS of only $6.98, it was not reasonable tpo expect NPK to pay anything close to the $8.15 paid in 2010. The price per share has been dropping steadily the past week as the ex-dividend date approaches. The stock must be owned  March 2 and the payout is March 15. This year NPK will pay $5.00 in a special dividend plus the $1.00 regular dividend. The shares are down 13% from the 50-day moving average as investors look to finessse the ex-dividend and sell the stock at recent highs and still collect the dividend. Volume doubled as the stock crashed 13% from $100 to $87. The short-term manipulation is the antithesis of how investors should think of investing in a solid, conservative, shareholder friendly company like NPK. 

A few words from the CEO

Never a company to sugarcoat the truth, Mary Jo Cohen had this to say about 2011 and  the upcoming 2012:

Consumers make purchases only when they are required.  That change in buying practice caused retailers to adjust their purchases to reflect what appeared to be a reduction in overall demand.  The adjustment became a self-fulfilling prophecy during the 2011 Christmas season. Retailers kept inventories during the season at ultra low levels.  Often, when the consumer was ready to purchase, the shelf was empty.  

Portfolio earnings were down as well from the prior year, reflecting the continuation of the ultra low Federal Reserve Board’s federal funds target rate which remained at 0.0% to 0.25%.”

Many of the issues that the Company faced in 2011 will in all probability continue in 2012, in particular, those that stem from a weak economy.  The fiscal and monetary policies of the current administration certainly provide little cause for optimism, and commodity costs are expected to increase significantly once again in the second half of the year.

On a more positive note, their absorbent products segment is beginning to grow and its revenue was up 21% and it is expected to continue high growth. Defense, while down 16%, has a sizeable backlog. Revenue from defense may continue to be slightly uneven due to timing events quarter to quarter, but revenue amounts for the year are assured at backlog levels. Since NPK refuses to play the guidance game, we have to parse the comments and assume revenue will likely be flat to down. What we may anticipate with some certainty is that the company can be relied on to share cash with investors when it's there. 

Rebels with a cause

NPK management  has little use for Wall Street, for analysts or for government meddling. Ms Cohen never tries to put a positive spin on business results, never pretties it up with non-GAAP metrics, does not do conference calls and seldom gives numerical guidance. While managment has  high regard for their shareholders and an  absolute , unwavering dedication to running NPK sensibly, they have complete disdain for living up to earnings and growth expectations imposed by analysts or activist investors. They will do what's right for the company. 

This year, times are tough and NPK made the reasonable decision to cut the payout.  Presto is conservatively run, has no debt, as of Q3 had  $17 per share in cash, and has an independent corporate cultuer reminiscent of one of my other favorite companies, Expeditor’s International (NASDAQ: EXPD). If NPK has noticed the volume spike and the price decline, they  no doubt find it bemusing but not troubling. What investors may want to do is spend the next 10 to 11 months setting up a position in anticipation of next year's dividend. At the right price, the yield can be highly rewarding. 

For some background and interesting reading on NPK, this is a Bill Mann article from 2004:

http://www.fool.com/investing/general/2004/05/12/presto-stays-its-course.aspx

To gain some appreciation for Melvin Cohen’s strong independent nature I recommend the exchanges with analysts here:

http://www.shareholderforum.com/nyssa/Published/NPK/analyst_reports.htm

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