Yowie shares offer investors a 25% yield & the board sees 'more capital returns'

How is it possible to offer such a huge yield?

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The Yowie Group Ltd (ASX: YOW) share price surged 30% today after the children's confectionary retailer announced it planned to pay shareholders a 2 cents per share special dividend as it would have more than US$16 million cash on hand as at June 30, 2019, and apparently little use for the cash. 

Yowie's operating history has been patchy at best as it failed to meet ambitious sales growth forecasts for its US and Australian businesses, but it has always had an extremely strong balance sheet thanks to its ability to raise capital from investors on the back of its boasts about growing a successful US business.

Notably, though it never delivered on these boasts with the stock falling from $1.20 in July 2015 to 8 cents today. 

Yowie is also the subject of a controversial hostile takeover bid largely due to the cash on its balance sheet as it also claims it's close to becoming operating cash flow positive.

Today its chairman flagged that it anticipates trading "cash positively" for the second half of the year partly to justify its generous dividend payout policy that you won't find in a Harvard MBA student's textbooks.

The decision to pay a cash dividend despite the lack of profitability may also be partly to do with its board battling to knock back a hostile takeover bid from Keybridge Capital. As whoever controls Yowie also controls its US$16 million cash balance. 

Keybridge is attempting to have several of Yowie's directors and its chairman removed, while today Yowie's chairman mocked its takeover attempt and proposed nominees as alternate directors. 

If Yowie does pay its 2 cents per share special dividend it offers a monster 25% yield for today's investors based on the 8 cents share price. It even traded as low as 6.9 cents earlier today meaning some dividend seekers picked it up on a 29% yield.

The kicker is the board envisages more capital returns should trading turn out as expected. However, generally forecasting has not been this board's strength.

While this is a huge yield you should remember that the company is still not cash flow positive and its corporate governance appears all at sea. So it looks a high-risk bet.

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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