I'm getting more interested in RNDY as the days go by and the price gets lower.
I have a slightly different take on the dividend situation and thought I would post it this weekend.
A). I think the dividend is absolutely safe for the next couple of quarters.
B). I think there is a good possibility (greater than 50%) that the dividend will be LOWERED after that, BUT NOT ELIMINATED.
I think that Willis Stein is wanting to get the most money they can out of RNDY. They tried to sell it to another PE firm, with no success. They then brought it public, to a not very good result. The only way out (at this point) is for them is to dividend out the cash flow. They have a tremendous incentive to distribute all the money they reasonably can. In my opinion, they are going to keep the dividend as high as possible, for as long as possible. That is what PE firms do...
I think that might be the correct strategy. Why reinvest significant amounts of cash flow if you are not going to get a sufficient return? They could pay out 2/3 of cash flow and reinvest the remaining 1/3 for capital improvements & maintenance. The stores would be put in a holding pattern, with slow growth coming from Mariano's (open 2-3 locations a year).
Yes, Wal-Mart & Meijer's are going to take market share. Yes, RNDY's margins are going to be under pressure. I would expect that RNDY is going to close some stores, and FIGHT in others.
It is not like RNDY is simply going to roll over & die (at least I hope as much!). They are going to fight. Wal-Mart & Meijer's is going to take sales from all grocers, not just RNDY.
So I think RNDY is going to continue paying a dividend. In the upcoming year, they may lower it. Earnings will probably be lower, but I don't see this company going out of business.
I DO SEE RNDY under selling pressure. Lots of people who bought in at the IPO, are angry & frustrated. It is going to be time for tax loss selling soon. I think RNDY will go lower. How much lower I'm not sure, but I'm starting to get interested at prices well below $6, and will be investigating further...
First, anyone who wants the link to the Chicago store tour video, email me. Yahoo wont let me post it. Second, did price checks today. Target is the winner with the RedCard being using.
Dividend - agree, dividend out the cash flow, any way they can. As they keep paying out the stock price should get lower over time, like a return of capital situation. How about buying long term $2.50 calls, take $3.20 back now, collect dividends. If they go under you won't lose much. If they go up, it gets called away and you collected dividends the whole time. I don't think it will go under $2.50 so you might be able to buy back the calls cheap.
I am sorry, I don't think I understand your strategy as you wrote it.
If you purchase the calls, how do you get the dividends?
Are you talking about SELLING the $2.50 calls? (using a covered call strategy?) That is the only way I know of to get dividends.
Interesting strategy if that is what you meant...
Let's use 1,000 shares for illustration
You buy RNDY common at $5.83/share you are out $5,830
On minute later you WRITE (sell) the March 2013 calls at $2.50/STRIKE, you receive $3,180 premium...
Your net outlay after 10 minutes is $2,650.
You have 1,000 shares and should receive the next dividend of $230. You would also receive one more dividend after that, for total income of $460.
Presumably, your stock is going to be called away @ $2.50/share. I don' t think there is much chance of it going lower than that...
So you would get $2,500 when stock is called away.
Net profit is $310, 11.7% return BEFORE fees. Fees are going to be substantial though, I would guess at least $30 for me.
So that leaves $280 NET, a return of 10.5% in a little less than 6 months. Not too bad.
You could probably DOUBLE your position to save on fees, OR if you were with Interactive brokers you could save on fees a bit too...
Another thing is if you could do a bit better on the sale of the options. The March 2013 2.5's were BID at $3.10 last trade $3.20. So you might get $3.2 instead of $3.10 That would make a big difference....brings return on 1,000 shares to 14.3% OR if you could get a 2,000 share position at IB, you might get return of 15.1%.
-RNDY does not hold dividend for next 2 quarters (I would guess 95% for next quarter, 85% for 2nd quarter...)
-RNDY does not go below $2.50 before March 2013. (I would place that at 95%). Of course, if things REALLY hit the fan, you might be able to make an exit and still not lose too much $$$, as you've got a lot of downside protection. RNDY would have to GAP LOWER at least 50% for you to get burned.
-Your gain is going to be treated as "earned income". This would be best to do in a tax sheltered account.
Interesting trade, might be good for small hedge fund/heavy hitting individual investor...