Know the Truth about Menards, Perkins and GLPI

Sometimes words can say something that is true, but they are designed to make you see something with tunnel vision. For example, the words, “Buy one, get one free,” sound so sweet until you realize that you are getting 50% off of a product that is designed to capture more of your dollars. At Perkin’s one of their Wednesday specials is, “Buy one entrée and get a second entrée free.” Well, not really. You have to buy two high-margin drinks to get the second entrée free. Menards (Save Big Money at Menards!) offers “11% off” specials. But the reality is that you get the 11% off if you submit their required paperwork and wait weeks for the coupon you can use at Menards to buy more at retail prices. Did you really get 11% off? No. The same cautions apply to investing. Here is an example using a recent dividend announcement from a REIT with the ticker symbol GLPI (Gaming and Leisure Properties, Inc.)

REITNOTES View of GLPI serves up a caution

When is a Dividend a Dividend?

When I saw the Seeking Alpha email announcing the quarterly dividend for GLPI, my immediate reaction was, “that is wonderful news!” I don’t currently own shares of GLPI, but I watch it along with other REITs that pay a decent dividend. I knew that GLPI had been hard-hit by Covid-19 concerns, so I looked at their dividend history and saw that their last dividend was $0.12. To see a $0.60 dividend seemed odd to me. But there are some details you don’t want to miss.

If the previous dividend was $0.12, how can the new $0.60 dividend be “in line with previous?”

Sometimes the dividend isn’t cash. If it isn’t cash, it can be more of the company’s stock. If it is more of the stock, it is really just funny money because you cannot spend it unless you sell the shares of the stock you received as a dividend. In other words, a stock dividend is just more stock, and it costs the company nothing.

A Dividend In Line With Previous

In trying to understand how the $0.60 dividend could be “in line with previous” if the previous dividend had been $0.12, I went to Fidelity to look at the more detailed news. There I saw the reality. The cash dividend is $0.12 so it was equal to the previous dividend. The other 48 cents is a stock dividend, making the total dividend $0.60.

The truth revealed: A stock dividend is a clever ploy but not a true dividend.

If you have 100 shares of GLPI, you will receive $48 of GLPI stock. In other words, at a current stock price of about $39.50 per share, you will get a “dividend” of about 1.2 shares of stock. You cannot spend that dividend. You would have to sell the 1.0 share to get $39.50. What a pain. Furthermore, the stock price could drop before you sell, because other owners might sell many of their shares for various reasons.

Wise Investors Pause and Think

Whenever you review a dividend announcement, look at the dividend payout ratio, the ex-dividend date and don’t miss some of the finer details that may be hidden in the dividend announcement. All that glitters is not dividend gold.