TransDigm Group (NYSE: TDG) manufactures parts for commercial and military aircraft and helicopters. Since 2006, TransDigm has quietly grown from a $1 billion market capitalization company with $430 million in trailing-twelve-month revenue to a market cap of $25 billion with $6 billion in revenue. The company’s share price has increased by more than 1,700% over the past 14 years.

That’s quite an impressive run for shareholders. However, TransDigm has also rewarded shareholders with seven special dividends since 2012. On December 20, 2019, management announced a $32.50 special dividend which was effectively a 6% dividend yield on the stock price at that time.

TransDigm’s management decides to pay its special dividend when it makes sense for the business. Historically, they have paid them after the business has posted strong operating results or after they have sold business assets. Although the commercial travel industry is clearly in a downturn after COVID-19, TransDigm’s management has a history of navigating unexpected economic events well. Since 2006, annual operating income has increased from $118 million to more than $2 billion at the end of 2019.

After the company’s most recent financial results on May 5th, the company appears to be positioned well to withstand a sustained downturn. Here are a few key statements from W. Nicholas Howley, Executive Chairman that display management’s unique capital allocation strategy:

“Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we have to stay focused on both the details of value creation as well as careful allocation of our capital”.

“With respect to liquidity, liquidity appears to be fine. Based on any of the market forecasts we’ve seen, we expect to run cash positive over any extended period, including covering all required principal interest payments. However, given the substantial market uncertainty, we decided to raise additional money and borrowed $1.5 billion in April. This new debt has no maintenance covenants and no maturities until 2025. This new money is an insurance policy for these uncertain times. It’s quite unlikely we need it”

Management is confident in the business, but took the extra precaution of borrowing $1.5 billion in April at a low cost in order to protect the business (and shareholders) in case the economic impact from COVID-19 is more drastic than anticipated.

It’s doubtful that the company will pay a special dividend in 2020 however, with this business’s track record of success and management’s history of rewarding shareholders, TransDigm is an enticing opportunity for long-term shareholders that want exposure to one of the best capital allocators of the last two decades.

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