Yup, that the way it works my friend a 33% interest rate for holding a stock for 14 days...a big no-brainer, the best Christmas gift announced in 2012 for a small cap stock. For all you haters out there please find a $2.95 stock that pays a $1.00 dividend or 33.8 % premium. Also to make life better for longs in this unique situation, there are 9.6 Million shares short and if you are short as of the ex-dividend date, you are liable to pay the dividend to the person whose shares you have borrowed to make your short sale. This situation usually pushes shorts to cover which ultimately pushes the PPS higher..... The risk is what will happens to the stock price once the eligibility window ends, that is the million dollar question? Will it go up or will it do down and if it goes down, how far down will it go?
You gain $1 for the special dividend, but the stock price will drop $1 the next day. So what is the point, if it's a zero sum game? It will put a hurting on the shorts, but will it help longs? Asked this before, but some posts in this thread have disappeared for unknown reasons.
On other factor to consider is that anyone who is short but hedged is going to be paying themselves the $1 dividend so they really aren't losing that money. There were only 10M shares shorted(2.7%) and I'm sure that all of the naked shorts covered in the aftermarket yesterday in the $3.20 to $3.30 range. Between yesterday's aftermarket and todays premarket and market trading there probably aren't any shares left short. The question now is how much new buying and new shorting is going to happen and nobody has that answer. I am sure that TLABs will hold off on the buy back until after the dividend is paid and the stock drops $1 and I'm also sure they will be relatively conservative in their buying. We are talking over a period of the next couple of years unless they have the intention of selling the company and they stated on the last CC that they have NO intention of selling and plan to be a stand alone company.
Your account will be credited with a $100,000 dividend BUT after the dividend is paid the stock price will drop $1.
What TLAB is doing is giving their long term loyal share holders this special dividend. It does have its negatives the main being that immediately they wipe out $367M of cash off their balance sheets.
The gap up you saw today will no doubt be filled and the stock will hit new lows once the PPS is dropped after paying the dividend.
The question after that is just how aggressively will they do their buy back. I am certain that the small short position has now covered since they don't want to pay the dividend and that gave the PPS most of its boost today. The 60cent gain was due to the short covering and probably some of the large long term institutions buying some stock.
The company had $2.50 something in cash and it is going to drop down to $1.50s and even lower with the buy back.
They are going to need to keep some cash on hand for their uncertain future.
Don't forget they are shrinking in size and revenues.
The biggest uncertainty is Telco spending looking out and so far they have held back and the likes of AT&T isn't giving TLAB their business.
PS I sold all my shares near the close for a nice profit and was surprised to see this move from $2.70 to $3.60 in 7 short trading days but I will take it! I am not going to chase the stock up now but it could have more legs. I just don't think they will be too aggressive with the buy back now that they just wiped out a massive amount of their cash with the special dividend.