Market Overview

3 Reasons TrueBlue Should Initiate a Dividend

3 Reasons TrueBlue Should Initiate a Dividend

To say that it has been a good year for the shareholders of TrueBlue (NYSE: TBI), a company in the $29 billion demand labor segment of the $100 billion staffing industry in the United States, would be an understatement.

For 2013, the stock price of TrueBlue has soared more than 70 percent, almost three times that of the Standard & Poor's 500 Index. There are three reasons why TrueBlue should initiate a dividend to reward its shareholders with an even greater total return for the future.

TrueBlue operates in one of the most bullish sectors of the US economy. Due to the Great Recession and Obamacare, companies are hesitant to hire full-time employees. There is concern about the stability of the economic recovery among businesses. The higher costs of having full-time workers as a result of Obamacare also has firms hesitant to take on the expense of an employee who will have to furnished with health insurance. More are contracting with companies for project employees.

As a result, TrueBlue has quarterly sales growth and earnings-per-share growth of nearly 20 percent.

It is bullish for others in the demand labor market, too. Labor SMART (OTC: LTNC), another small cap like TrueBlue, just announced record revenues.

Due to the demand, the government shutdown did not hinder the exploding growth of Labor SMART. According to its CEO, Ryan Schadel, "While we noticed some revenue decreases related to projects backed by government funding, these decreases were largely offset by increases in other areas of our business...our newly opened office in Raleigh, N.C .exceeded $30,000 in revenue last week. For a new office, this is an amazingly fast ramp up and illustrates the opportunity for Labor Smart as we march toward expansion in 2014."

This explosive growth is one reason that TrueBlue needs to start a dividend.

It should share the revenues with its shareholders. There is little debt and plenty of cash. With earnings-per-share projected at 25.94 percent for next year by the analyst community, TrueBlue can easily afford a dividend. Sharing the earnings through a sound dividend will also make the stock more stable, which is needed as the beta is 1.99. 

Paying a dividend would make TrueBlue a more desirable member of the sector, even as a small cap. Of the 26 publicly traded members of the staffing sector, only four pay an average dividend of two percent or better. Robert Half International (NYSE: RHI) only pays a dividend of 1.57 percent. There is a 1.15 percent dividend from ManpowerGroup (NYSE: MAN). TrueBlue would immediately become a more prominent member of the industry, set apart attractively from the others in the eyes of investors due to its healthy dividend payment.

A dividend would also attract income-seeking investors, which should raise the stock price of TrueBlue.

Paychex (NASDAQ: PAYX), which pays a 3.28 percent dividend, trades with a price-to-sales ratio of 6.62. Robert Half has a price-to-sales ratio of 1.72. TrueBlue has a price-to-sales ratio of 0.72. A dividend would attract more to the stock, which will reduce how undervalued TrueBlue is compared with others in the sector.

The shareholders of TrueBlue would only gain from a the starting of a dividend. More would own the stock, which will increase the price of shares. There will also be a more secure shareholder base, which will stabilize the equity in trading. All would gain from a dividend payment, raising TrueBlue in prominence in its industry.

Posted-In: Long Ideas News Dividends Small Cap Analysis Technicals Economics Success Stories Trading Ideas Best of Benzinga


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