National Presto Industries Inc. (NPK), Stanley Black & Decker, Inc. (SWK): Don’t Forget About Special Dividends

If you use a stock screener to find dividend stocks, you may be missing out on companies which routinely pay special dividends. Special dividends aren’t typically considered when calculating the dividend yield, so most stock screeners will miss these companies. National Presto Industries Inc. (NYSE:NPK) is one such company. National Presto Industries Inc. (NYSE:NPK)’s regular dividend only yields 1.4%, but the annual special dividend is what makes the stock interesting.

National Presto Industries Inc. (NYSE:NPK)

An oddly diverse business

National Presto Industries Inc. (NYSE:NPK) operates with three different divisions which couldn’t be further apart from each other. The small appliances business makes products like pressure cookers, deep fryers, popcorn poppers, coffee makers, and a variety of other small kitchen appliances. The defense division produces ordinance and ammunition, a strange fit for a company which also makes tea kettles. And the absorbent division makes adult incontinence products.

National Presto Industries Inc. (NYSE:NPK) is a small company, with just $472 million in sales in 2012. Revenue has been pretty much flat since 2007, along with net income. National Presto Industries Inc. (NYSE:NPK) is at best a very slow grower, so if it’s capital appreciation that you’re after, it’s best to look elsewhere. National Presto Industries Inc. (NYSE:NPK) current trades at about $71 per share, with no debt on the books and about $14 of net cash per share. The EPS of $5.64 in 2012 puts the cash-adjusted P/E ratio at just about 10. This may look cheap, but it’s not the main reason to consider Presto.

A very special dividend

Presto pays a regular dividend of $1 per share each year, but on top of this, the company pays a special dividend which is determined by the earnings. In 2012, this special dividend was $5.50 per share, bringing the total dividend payment to $6.50 per share. Based on this payment, the dividend yield is an astounding 9%.

Now, there’s no guarantee that the dividend will stay at this level, as it depends on earnings, so the next special dividend could very well decrease. In 2011, the total dividend paid was $8.25, so the payment has decreased substantially already.

There is certainly the risk that profits continue to decline, taking dividends along with it. The company does have plenty of cash, about $100 million, but this can’t sustain the dividend for more than a couple of years. Presto is an interesting opportunity, with a 9% yield possible, but there is considerable risk.