I think Rick's needs to consider paying quarterly ordinary dividends.
The first is that several major announcements in the last few months have failed to move the stock price. The new club in Los Angeles, a new club in New York, the Jaguars acquisition which substantially increased the number of clubs, revenue and earnings growth and the announcement of the Bombshells theme. That is a lot of good news and it has been ignored by the market. Nobody's biting. Trading volumes are extremely low.
Second, and this has nothing to do with the company, there has been a fundamental shift in the financial markets. The only place retail investors can find the kind of yields they are looking for is in equity securities, common, REITS, preferreds and MLP's. As we all know rates and yields are at all time lows on savings accounts, money market accounts, CD's, fixed and indexed annuities, floaters, notes and bonds of all kinds including high yield bonds. The Fed and Treasury policy have caused retail investors much further out on the risk curve to find an acceptable rate of return-equities. From Portfolio manager's at mutual funds to retail brokers, Wall St has responded and is looking to meet this demand. Retail brokers use to pitch how much capital gains their recommendations had returned. Now they talk about yields. This change is fundamental. A dividend around 3%-5% should generate increased demand for Rick's.
Eric won't issue a dividend on the common stock, because it would mean he alone would be paying a 48% tax on every pre-tax dollar Ricks earned and was passed to him. This is why he is looking into a REIT structure.....he gets a vehicle to acquire real estate cheaply, offers investors (possibly himself, depending on how it is stuctured, spin-off to common holders) a dividend if they want one and sheds a large chunk of assets and debt off Ricks books to increase ROA and ROE ratios. This is probably why the NYC 33rd St real estate acquisition was delayed by 6 months to allow for the REIT to be put in place.
Needless to say, low interest in the stock in the face of an abundance of good news shouldn't be frowned upon. All these events should increase annual cash flow down the road, while we are allowed to acquire more shares of a cheap stock with more information to base future purchases. One day the stock will react if Ricks keeps making positive investment decisions. And at some point, they will be generating more cash than they will know what to do with, that some form of returning it to investors will be necessary as they won't be able to spend it all on great investments.
OA, I am very much in respect of your position. It is a very strong position to support. It is the same one I publicly stated for several years. I changed my mind. No apologies, no looking back. Would I prefer to see the company having more size than it currently does to start a dividend program? Definitely, without a doubt.
Here's my thinking: 82 million market value times a 5% dividend yield would cost 4.1 mil a year or a little over a million a quarter. Let's face it: Quarterly dividends cause management to have an increased focus on fiscal discipline. Not a bad thing from a shareholder perspective. Based on current financials, a 5% dividend shouldn't be painful. Especially if it increases demand for the stock.
If the stock rallies, then it is one more tool for management to use in structuring deals. I know you guys don't want to dilute the stock. I understand. But lets look at cost of capital. Do the math. Here is one last thought. If you sell an asset to Rick's, are you more likely to keep the stock you receive in the deal if it pays a dividend than if it doesn't?
If the Bombshells and Vee themes work, I believe that is where the company will be allocating capital. Restaurant chains can go to Wall St for money all day long. Strip clubs? Not really.
If Eric does everything for HIS benefit eventually other investors will lose interest and this POS will tank. At some point, he has to do something to bolster the stock price or it won't be supported. You can fool some investors for a while but eventually you have to put up.
Eric cannot use this just to benefit himself or he'll be a target.....just ask Hugh Hefner who now spends his old age fending off lawsuits. He cannot even afford to fix up his mansion.