Strip-Club Dollars Coming at RICK

RICK (long): 154 shares, 8.42€/Share

Much has happened to RCI Hospitality (RICK) after having pitched why I bought into the firm. Since last week the price dropped below 8 USD, which translates into a FCF-yield just short of 20%,  I decided to up my position by 70 shares. Due to a shortage of cash I sold my CB&I holdings to finance the purchase. This shifting out of CB&I into RICK has two reasons. First, I believe RICK is valued much more attractively and its real-estate portfolio, takes a lot of risk out of the equation. Second the recent developments at CB&I (impairment and selling of their nuclear segment) haven´t exactly bolstered confidence in the current management to create shareholder value.

Back to RICK. The company in its latest earnings announcement has again addressed capital allocation. Management stated they remain committed to share repurchases after having retired almost about 200.000 shares (2% of the float) in the latest quarter. On top of that they have now initiated dividend payments of 0,12 USD a year. While I believe that share repurchases at current depressed prices present the much more advantageous way to allocate excess funds, the initiation of dividend payments could serve as an important signal to capital markets. By being investible for income investors and funds the company is becoming much more visible. Also the dividend highlights the company´s FCF generation abilities. So far RICK shares have reacted positively to the news, making me hopeful that there is more to come.


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