It has been two months since I unveiled my Double-Net Dividend portfolio, an eclectic mix of companies trading cheaply relative to net current assets (between 1 and 2 times) that also return cash to shareholders in the form of dividends. It's the type of concept that only could be conjured up deep within the simple yet convoluted mind of a value investor.
So far, so good. While two months is but a day in deep-value land, the early results have been promising. The portfolio is up 10.1% since the portfolio's unveiling versus 5.6% for the Russell 2000 Index and 6.5% for the Russell Microcap Index. Seven of the 10 names are in positive territory.
The overall performance has been driven in part by the June 29 announcement that boat retailer West Marine Inc. (WMAR) has agreed to be taken private at $12.97 a share, which sent shares up 33%. West Marine is just the latest in a line of double-nets that have been acquired during the past couple years in a little-known subset of the small and microcap spaces that have become fertile hunting ground for acquirers. Ironically, the company had just initiated paying a dividend back in March. I believe the acquisition price is way too low and that the acquirer is getting a great deal. I'd hoped that other bidders would sweeten the deal, but this is retail, and no one is paying a premium for retail these days.
Another retailer, Guess? Inc. (GES) , also has performed well, up 24%. The stock is yielding a whopping 7.2% (down from 9% two months ago) and the company still has plenty of cash. The company's fourth- quarter loss was lower than expected, which provided a 14% bump the day this portfolio was unveiled. Retail is still a difficult area, however, and likely will remain volatile. When the dust settles, it will be interesting to see which retailers will remain standing.
The three names in negative territory are just moderately so, and include Universal Corp, (UVV) (down 3.75%), Shoe Carnival Inc. (SCVL) (down 3.1%) and FreightCar America Inc. (RAIL) (down 1.6%). RAIL remains a potential takeover candidate and currently trades at 1.3 times net current asset value. The company ended its latest quarter with $109 million, or $8.89 per share, in cash -- more than half its market capitalization -- and no debt. It does operate in a cyclical industry, however, and we'll get our next set of results when the company reports second-quarter earnings on Aug. 3. Consensus estimates are calling for a loss of four cents a share on revenue of $107.3 million. The company had a huge positive surprise last quarter. I'll be most interested in cash flow and balance sheet quality.