Just lately, Wingstop ( WING -0.07% ) introduced it might be rewarding traders with a particular money dividend price $4 per share. The fee would be the fifth time up to now six years that the hen wing chain has paid a particular dividend. But, this specific dividend comes when the corporate is at a crossroads. Here is why the particular dividend will not be a good suggestion.
When will the particular money dividend happen?
Should you personal Wingstop inventory on March 24, you may obtain your $4 dividend fee on April 7. The roughly $120 million fee will come from a newly secured mortgage of $250 million at a roughly 3.7% annual rate of interest. The dividend yield for the particular dividend is over 3%. The corporate famous it plans to make use of the surplus proceeds to “strengthen its liquidity place and for normal company functions.”
Picture supply: Wingstop.
Whereas traders typically welcome particular money dividends, Wingstop’s technique to take out loans to pay for it is not with out threat. Even earlier than Wingstop added the $250 million mortgage, it already had roughly $469 million in long-term web debt. Wingstop has a historical past of recapitalizing, wherein it pays off previous loans with new loans with higher phrases.
Nonetheless, its long-term web debt has ballooned 652% since its IPO in 2015. For comparability, Wingstop’s complete income and web revenue elevated 262% and 322%, respectively.
In the meantime, Wingstop’s CEO resigns
Shortly after Wingstop introduced its particular money dividend, CEO Charlie Morrison introduced his resignation after 10 years with the corporate. Morrison plans on taking the identical position at Salad and Go, a fast-casual connoisseur salad restaurant. Whereas CEOs go away firms for numerous causes, it is uncommon that one leaves for a smaller enterprise like Salad and Go, which has 47 places in two states, in comparison with Wingstop’s 1,731 worldwide places.
Wingstop’s chief working officer, Michael Skipworth, who has been with the corporate since 2014, was introduced as Morrison’s successor and assumed full obligations as of March 14. “I can not consider a greater particular person to function Wingstop’s president and CEO,” Morrison stated about Skipworth.
Lofty enlargement plans
Skipworth could have his work minimize out for him because the firm’s long-term plans embody 4,000 home and three,000 worldwide models — representing a 300% enhance from its present complete depend. Moreover, Wingstop faces unprecedented inflation costs for its core product: hen wings. Administration has tried to alleviate prices by including hen thighs to its menu, permitting the corporate to purchase the whole fowl as a substitute of simply buying the wings and a few breast meat.
Whether or not Wingstop’s new CEO might be profitable is but to be decided. However underneath Skipworth’s tenure as COO, the inventory is up roughly 530% since its IPO in 2015, in comparison with the S&P 500‘s return of about 110% throughout the identical time interval.
What’s Wingstop’s outlook after the particular money dividend?
Traders could also be overlooking Wingstop as a high dividend inventory, since its quarterly payout yields about 0.56%, which is taken into account a low yield. Nevertheless, traders who’ve held shares since Wingstop’s IPO have reaped the rewards. This upcoming $4 dividend will imply the corporate has paid $19.80 in dividends since going public, which is larger than its IPO value of $19 per share.
Past Wingstop’s particular money dividend, look to see how its new CEO manages its rising debt and retailer enlargement. Lengthy-term traders could wish to wait to see Wingstop present promise in these areas earlier than taking a chunk out of its inventory.
This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even one among our personal – helps us all suppose critically about investing and make choices that assist us develop into smarter, happier, and richer.
