I know this is a very intelligent board so I am sure my questions can be answered.
Exactly how bad off are the shorts going to be when they have to pay the special dividend? Will RGR spike to over $60 in a few short days when we see the shorts running to cover so they don't have to pay $4.50 a share or be forced to sell because they are being squeezed?
What does this dividend say? RGR must be making record profits to pay out such a large percent of their cash on hand. Can we be looking forward to record profits that will be blowing away all analyst estimates?
Boy I love this stock. The news keeps getting better and better.
Look at what happened to Dominos (DPZ). The special divvy was $3 and announced when the stock had closed at $33.54, so that was a 8.9% divvy. In our case RGR closed at 48.83 and divvy is $4.50, so this is a 9.2% divvy (very close).
In the case of DPZ, the stock made a high the next day of 38.98 (+16.2%) and closed at 38.82 (+15.7%) vs. +0.34% for the S&P500. In the ensuing 15 trading days after the spec. divvy announcement, it made an all time intraday high of 42.2086 (+25.8%) and an all time closing high of
41.30 (+23.1%) vs +3.08% for the S&P500. This high occurred 3 days before the ex-divvy date, which was 18 days after the announcement.
Of course, this is a comparison with only one other stock's behavior and we really should also take into account what the best estimate of the short interest of DPZ was at that time compared to what the best estimate of the short interest of RGR is now, but disregarding that, we could get a high tomorrow in RGR of 56.74 and a all time high before the ex-divvy of $61.43, which is +5.1% greater than the current all time high of $58.42..
Thanks for turning me into a nerd :).
PS: It looks like, at that time, DPZ only had short interest of 1.7 days to cover whereas RGR last had short interest of 30 days to cover. This just MIGHT get interesting :).
The shorts are going to be destroyed. I mean, who in their right mind would sell at $50'ish, and before the ex-dividend date? I guess if it goes up to a new high, they might get some loose. One thing for sure, it's going to be some interesting trading days in RGR.
That said, in most circumstances, I don't think that it's the best idea to be paying out 82% of cash for a special dividend. I wonder if we'll find out what went into the board's thinking on this. Was it beating a capital gains tax hike? Getting rid of a problem with shorts? Or?
What if AAPL decides to do something like this? A $25 special dividend? I'm must trying to put it in perspective. Good luck tomorrow, longs. Shorts, well...squeal like a pig.