Is Wingstop's Special Cash Dividend a Mistake?

Recently, Wingstop (NASDAQ: WING) announced it would be rewarding investors with a special cash dividend worth $4 per share. The payment will be the fifth time in the past six years that the chicken wing chain has paid a special dividend. Yet, this particular dividend comes when the company is at a crossroads. Here's why the special dividend may not be a good idea.

If you own Wingstop stock on March 24, you'll receive your $4 dividend payment on April 7. The roughly $120 million payment will come from a newly secured loan of $250 million at a roughly 3.7% annual interest rate. The dividend yield for the special dividend is over 3%. The company noted it plans to use the excess proceeds to "strengthen its liquidity position and for general corporate purposes." 

Image source: Wingstop.

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Source Fool.com