A fully franked 17% return in just over a year: Here's how

One company announces plans to pay out five dividends in 13 months

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Industrial products supplier, Coventry Group Ltd (ASX: CYG) has seen its shares soar 14.6%, after the company announced plans to return 55 cents in fully franked dividends to shareholders in the next 13 months.

At the current price of $3.21, that's a return of about 17% in dividends alone (before franking).

As I highlighted back in March, Coventry was sitting on $53 million of cash, and as a result attracted the attention of corporate raiders. Sandon Capital investments and retail entrepreneur Lorna Dorsett launched a share raid in April, acquiring 7.8% of the company. The activists wrote to Coventry chairman Roger Flynn, asking the board to pay a special fully franked dividend of 60 cents, or around $25 million in total.

Now it seems Coventry has taken a step towards that, announcing it will pay five dividends of 11 cents from July 2014 until August 2015, costing the company $21 million. That obviously still leaves the company with a decent cash balance of around $32 million. Coventry says it has franking credits available to pay 57 cents in dividends, with a subsidiary's balance available to pay a further 5 cents in fully franked dividends.

The company says the view of its shareholders was that they value continuity of dividends rather than a very large one off dividend – hence the staggered payment.

But Coventry may need to keep as much cash as it can on hand, after downgrading its 2014 full year profit forecast to between $1 million and $2 million in April. Suffering from the downturn in the mining sector, and lower orders from its resources and mining services customers, Coventry is attempting to turnaround its divisions by cutting costs, rationalising the number of products it sells and improve its distribution network.

But investors should note that there's no guarantee that the share price won't fall by more than the dividend payouts. Mining investment is still falling, and those servicing that sector face a tough road ahead, including the likes of Monadelphous Group Ltd (ASX: MND), Cardno Limited (ASX: CDD), Bradken Limited (ASX: BKN) and Fleetwood Corporation Limited (ASX: FWD).

Coventry Group is just one way to generate high returns in the stockmarket. Here's our simple 10 step guide on how you could make $1 million in the market…

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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