New Preferred High Dividend Stock Trading Below Call Value

We’ve been fans of preferred high dividend stocks for some time now, having owned and written about them for several years. However, in the yield-crazed market of 2016, it has become increasingly difficult to find attractive preferred stocks trading below its call value.
However, that just changed, for now. One of our perennial favorite dividend stocks, Seaspan, (SSW), just announced a new preferred offering in early August, and, miraculously, this new stock is still trading below $25.00.
Profile: Seaspan operates as an independent charter owner and manager of containerships in Hong Kong. The company charters its containerships pursuant to long-term, fixed-rate time charters to various container liner companies. As of May 27, 2016, its fleet consisted of 89 vessels. The company was founded in 2005 and is based in Majuro, Marshall Islands.
Seaspan has grown to become the world’s largest containership lessor, with 3.8% of the global fleet, and $6B in contracted revenue. Its business model is based on long term contracts for its vessels, most of which are contracted out for years in advance, even before they’re built.
Their fleet currently has an avg. remaining contract life of 5.4 years.
SSW4-TOP10SHIPPERS
SSW’s fleet is leased out major shipping firms that operate on the trade routes between the Eastern and Western hemispheres.
ssw4-map

Preferred Dividends: SSW recently issued a new cumulative preferred Series H, which is trading at $24.77, below its $25.00 call value. It’s a perpetual stock, meaning it doesn’t have a maturity date, but SSW can call it/redeem it at any time starting 8/11/21.
SSW4-PREFD

On the face of it, these SSW-H shares have a similar yield to SSW’s other 3 preferred series. However, when you look at their yield to maturity, you’ll see a different story.
Since the SSW-H shares are trading below $25.00, you’d also have a $.23/share gain, if you held them to their 2021 call date, and SSW redeems at that time.
This accounts for the higher 8.18% “Yield to Maturity”, (or, in this case, Yield to Call Date), on the SSW-H shares.
Another big plus is that all of SSW’s preferred shares are cumulative, meaning that SSW must pay the preferred shareholders 1st for any skipped dividends, BEFORE they pay any more common dividends.
SSW4-PREFD-YTM
Of course, it always pays to look at any stock’s dividend coverage. In general, you’ll find that preferred stocks have better coverage than common shares, since preferred dividends payments are subtracted above the net income line on income statements. In SSW’s case, its preferred dividend coverage has been lumpy on a quarterly basis, but overall they’ve had a 3.45x coverage factor for the past 4 quarters:
SSW4-PREFDIVCOVGE
Our High Dividend Stocks By Sectors Tables page tracks the current price and yield for SSW’s preferred and common stocks, in our new Services table.

Common Dividends: SSW’s common stock is currently yielding over 10%. The company has had good dividend growth over the years, with a 5-year dividend growth rate of over 21%.
SSW4-DIV
We looked at SSW’s Net Earnings and added back Depreciation & Amortization to it, to arrive at their current common dividend coverage, which also looks pretty healthy, at a 2.43x factor over the past 4 quarters:
SSW4-COMMDIVCVGE
SSW4-DIVHIST-CAD

Options: SSW also has options, but there aren’t any compelling trades at present. However, you can see details for over 25 other income-producing trades in our Covered Calls Table, and also in our Cash Secured Puts Table.

Earnings: SSW has had strong growth in Revenue, and Normalized EPS, over the past 4 quarters. Its EBITDA and Cash Available For Distribution growth have have been more modest, but still over 6% and 7% respectively.
SSW4-QTRLY
Looking back further, SSW has also had good growth:
SSW4-2015VS2014

SSW4-REV-EBITDA
Performance & Price Targets: With all of this growth, you’d think that the market would have rewarded SSW with some price gains. However, this hasn’t been the case – SSW’s common shares have underperformed until the past month, due to concerns about China’s slowdown. As you saw above, though, its preferred shares however have done well, with all but the new offering above their call values.
ssw4-PERF
SSW’s common shares now sit at 1.5% below the consensus price target of $15.00
SSW4-TGT
Valuations: With shipping stock prices all over the place, these broad industry averages are a bit odd – many shipping companies show negative P/E’s, due to the fact that, as LP’s, they use a distributable cash flow earnings model instead. SSW looks fairly valued on a Price/Book basis, but then, look at the disparity in the dividend yield, vs. the industry average.
SSW4-PB
Financials: SSW has a very impressive operating margin, but it does carry more debt. It has strong relationships with financing sources in Asia – it raised over $700M there in Q2 2016 alone, due to its strong track record, while at the same time redeeming the balance of its outstanding C-Series preferred shares.
SSW4-ROE
Disclosure: Author owned shares of SSW, SSW-E, and SSW-H at the time of this writing.
Disclaimer: This article is intended for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing any of the stocks listed in this article.
Copyright 2016 DeMar Marketing. Al rights Reserved.

2 Low Beta Utility Dividend Stocks Beating The Market

Looking for low beta dividend stocks, that don’t march to the beat of the market? It’s a common theme these days, with P/E’s of traditional value stocks and defensive stocks getting a bit stretched. Thanks to their dividend yields, and defensive attributes, normally stodgy Utilities stocks have led the pack in 2016, by a wide margin:
SCTOR72316

With this market-leading success in mind, we wondered if there were any low-beta utility dividend stocks left, which were still reasonably priced. We came up with two stocks, Public Service Enterprise Group, (PEG), and South Jersey Industries, (SJI), both of which have low betas, and a dividend yield over 3%.

Profiles: South Jersey Industries is an energy services holding company based in Folsom, NJ, that operates through two primary subsidiaries – South Jersey Gas delivers natural gas to approximately 375,000 customers in southern New Jersey. SJI’s non-regulated businesses, under South Jersey Energy Solutions, develops, owns and operates on-site energy production facilities; acquiring and marketing natural gas and electricity for retail customers; providing wholesale commodity marketing and fuel management services; and offering HVAC and other energy-efficiency related services. South Jersey Gas was founded in 1948.
Public Service Enterprise Group, through its subsidiaries, operates as an energy company primarily in the Northeastern and Mid- Atlantic United States. The company operates nuclear, coal, gas, oil-fired, and renewable generation facilities with a generation capacity of approximately 11,678 megawatts. It sells electricity, natural gas, emissions credits, and a series of energy-related products. The company also transmits electricity; and distributes electricity and gas to residential, commercial, and industrial customers, as well as invests in solar generation projects, and implements energy efficiency and demand response programs. In addition, it offers appliance services and repairs to customers.

Dividends: Our High Dividend Stocks By Sectors Tables page tracks the current price and yield for both PEG and SJI, in the Utilities section.
Don’t get fooled by the dividend history for SJI – they did cut their dividend by half, but this was due to a 2-for-1 stock split. SJI has a lower dividend yield, but a much better dividend growth rate than PEG, at 11.14%.
Both companies cover their dividends with ample EPS, with PEG being a tad more conservative, at 51%, vs. 61% for SJI:
2UTES-DIV
Options:There are options listed for PEG and SJI, but they’re not that attractive at present. However, you can see the details for more than 30 other income-producing trades in both our Covered Calls Table and our Cash Secured Puts Table.

Valuations: PEG is a much bigger firm, at over 10x SJI’s market cap. It also looks much cheaper than SJI, on a P/E basis, in addition to having lower Price/Book,EV/EBITDA, and Price/Sales valuations.2UTES-PB
Performance & Technical: SJI’s higher valuations stem from the huge outperformance it has had in 2016 – it’s up over 37% year-to-date.
2UTES-PERF

That outperformance is the trade-off vs. beta – PEG has a much lower beta, of only .20, vs. .62 for SJI. But, hey, we’ll take a 22% year-to-date gain, no problem. PEG’s trading volume of 3-plus million shares/day is about 5x SJI’s volume, but both stocks are liquid.
2UTES-BETA
This 2016 chart shows how SJI took off in mid-May, after increasing the size of a secondary offering of its common stock by 500,000 shares, bringing the total offering to 7 million shares. SJI also received an analyst upgrade to Buy from Guggenheim.  (Each column represents a month in this chart.)
2UTILS-PERFCHART
Financials: PEG has slightly better ROA, ROE, and ROI stats than SJI, in addition to having a higher Operating Margin, and a lower debt load.
2UTES-ROE

Disclosure: Author owned no shares of PEG or SJI, at the time of this writing.
Disclaimer: This article is intended for informational purposes only, and is not intended as investment advice. Please practice due diligence before investing any of the stocks listed in this article.
Copyright 2016 DeMar Marketing. Al rights Reserved.

2 Outperforming Regional Bank Dividend Stocks

by Robert Hauver
Looking for safe dividends? How about safe dividends with a little something extra, like price gains? We’ve found two regional bank dividend stocks, from different areas of the US, both of which have outperformed the S&P 500 over the past month, year, and year to date:
SYBT-PERF
SYBT is much larger outfit than PKBK, and has a longer history. However, PKBK has the added attraction of being priced below Book Value. It also has a much lower P/E, and Price/Sales valuation:
SYBT-PKBK-PB
Profiles:
SYBT: Stock Yards Bancorp, Inc. operates as the bank holding company for Stock Yards Bank & Trust Company that provides commercial and personal banking services in Louisville, Indianapolis, and Cincinnati. Its loan portfolio comprises commercial and industrial, real estate mortgage, construction and development, undeveloped land, and consumer loans; and originates and sells single-family residential mortgages. It also offers securities brokerage services through an arrangement with a third party broker-dealer; and investment management, retirement planning, trust and estate administration, and financial planning services. As of 12/31/15, the company had 37 banking locations, including 28 full service banking locations in the Louisville metropolitan statistical area (MSA), 4 full service banking locations in the Indianapolis MSA, and 5 full service banking locations in the Cincinnati MSA. Stock Yards Bancorp, Inc. was founded in 1904 and is headquartered in Louisville, Kentucky.
PKBK: Parke Bank is a full service commercial bank, with an emphasis on providing personal and business financial services to individuals and small-sized businesses primarily in Gloucester, Atlantic and Cape May counties in New Jersey and Philadelphia and surrounding counties in Pennsylvania.
Parke Bank conducts business through a branch office in Northfield, New Jersey, two branch offices in Washington Township, New Jersey, a branch office in Galloway Township, New Jersey and a branch in center city Philadelphia.

Dividends: Although these 2 stocks’ dividend yields aren’t high enough to add them to our High Dividend Stocks By Sectors Tables, they do offer much better yields than Treasuries, and they are both well-covered, with conservative Dividend Payout ratios.
SYBT-PKBK-DIV
In addition to paying quarterly dividends, PKBK also occasionally pays out a huge kicker, in the form of a 10% stock dividend. PKBK declared a 10% stock dividend earlier in 2016, which was payable on May 18, 2016, to stockholders of record as of May 4, 2016. PKBK previously declared a 10% stock dividend in 2013. They’ve also increased their quarterly dividends 3 times since April 2015.
Neither of these two stocks currently has options available, but you can see income producing options trades for over 30 other stocks in our Covered Calls Table and also in our Cash Secured Puts Table.
Q1 2016 Data: PKBK had respectable gains in deposits and loans in Q1, in addition to increasing Shareholders Equity.
PKBK-Q1
It also good income growth year over year in Q1 2016:
PKBK-Q1-INC
SYTB had good growth in Q1 2016 vs. Q1 2015.
SYBT-Q1-RPT
Financials: We usually look for ROA figures of over 1.00% when analyzing banks, so SYBT’s 1.40% is actually a lot more impressive than you’d think. (It had the highest ROA of the stocks which came up in our screen for this article).
SYBT-PKBK-ROE
Disclosure: Author owned shares of PKBK or SYBT, at the time of this writing.
Disclaimer: This article is intended for informational purposes only, and is not intended as investment advice. Please practice due diligence before investing any of the stocks listed in this article.
Copyright 2016 DeMar Marketing. Al rights Reserved.

Top High Dividend Stocks In 2016

by Robert Hauver
Trying to make sense of this market? Join the club – it’s been a topsy-turvy ride so far in 2016, with the market getting off to its worst start in history, thanks to the December Fed rate hike, and plunging oil prices.
Then, in early February, oil prices bottomed, and the market started coming back. This chart uses the USO oil ETF as a proxy for oil. It’s a pretty good directional correlation between oil and the S&P 500:
TOPDIV-SPCHART
(Chart Source: YahooFinance)
Investors have flocked to the Utilities sector in 2016 for its defensive attributes, and also to the Basic Materials sector, in order to profit on extremely beaten down Energy and Basic Materials stocks. Even with their out-sized gains in 2016, these 2 sectors still have the highest dividend yields in the market:
TOPDIV-SCTR
So, after all of that support, how do their valuations stack up vs. other sectors? Basic Materials still has the lowest average Price/Book and Price/Sales, with Utilities near the low end for Price/Book and in the middle for Price/Sales. It’s hard to use P/E across the board to compare sectors, though, since so many Energy and Basic Materials stocks use an alternate metric, Price to Distributable Cash Flow to value their earnings.
Healthcare, a former front runner over the past few years, has gotten very little market support, thanks to political and headline pressures. Its P/E is also skewed higher by richly-valued biotech stocks.
TOPDIV-SCTR-PE
Here are the top 10 performing high dividend stocks so far in 2016. We screened for positive earnings, a 5%-plus dividend yield, and positive ROE and ROA. Not surprisingly, there are a few familiar names in this list – DLNG and KNOP, some shipping stocks which we wrote about here last month, and DPM, which we covered in a Seeking Alpha article.

These 3 stocks are also listed in our High Dividend Stocks By Sector Tables, where you can track their prices and current dividend yield.
Here’s the glaring paradox about these stocks – even though they’re up by big percentages i 2016, they’re mostly still down over the past year – DLNG, for example, is up over 52% in 2016, but it’s down over -22% over the past year. It shows you how extremely beaten down these stocks were, that this could be possible.
TOPDIV-TOP10
Here are the 3 Top Performing Utility High Dividend Stocks for 2016: APU, LNT, and BIP. Interestingly, there each in a separate sub-industry within the Utilities sector.
TOPDIV-UTES
Valuations: BIP has the cheapest Price/Book, but its P/E is high. However, on a Price to Funds From Operations basis, (P/FFO), it looks cheaper, at 11.85x.
TOPDIV-UTE-PB
Top Performing Basic Materials Dividend Stocks: 4 out of 5 are Oil & Gas Pipeline stocks – investors definitely got the news that fee-based pipeline businesses weren’t going under anytime soon, even with cheap crude oil sloshing through the system.
TOPDIV-BASIC
Valuations: The 4 pipeline stocks have something else in common – take a look at how much lower their forward P/E’s are – clearly, analysts see better things ahead for them.

NS and SRLP also have options available – we list trades for them and over 30 other stocks in our Covered Calls Table and in our Cash Secured Puts Table. We’ve also written previously about them on Seeking Alpha.
TOPDIV-BASIC-PE
CNNX is the winner in this group for margin, while SRLP has the strongest ROE:
TOPDIV-BASIC-ROE
Disclosure: Author owned shares of DLNG, KNOP, and BIP, at the time of this writing.
Disclaimer: This article is intended for informational purposes only, and is not intended as investment advice. Please practice due diligence before investing any of the stocks listed in this article.
Copyright 2016 DeMar Marketing. Al rights Reserved.

5 High Dividend Shipping Stocks Going Ex-Dividend Soon

by Robert Hauver
Looking for more income from your portfolio? Income investors have been hopping aboard shipping dividend stocks in 2016, enticed by their high dividend yields.
SHIPS-PIC
This sub-industry has certain companies which are becoming more well-known for their stable business models, which are based upon long term contracts, with solid counter parties. After all, who doesn’t want to have a glimpse into the future? These stocks will typically have around a 5-year or longer remaining length of time on their contracts, not including options to extend.

They’ve all IPO’d within the past approx. 5 years, and their cash flow and earnings growth is based upon a “dropdown” model, in which their parent companies, usually known as sponsors and/or general partners will sell them assets, which already have signed contracts on them.

2 of these stocks…
Click here to read more…

5 Utility Dividend Stocks With Upside Potential

by Robert Hauver

With the S&P 500 finally in positive territory year-to-date, we took a look at what’s been working in 2016. Topping the list is the Utility sector, which has been the go-to sector for income investors, and even non-income investors in this volatile market.

Healthcare, formerly the leading sector for quite a while, has fallen out of favor, thanks to political headline risk due to prescription overpricing by some firms. meanwhile, the Utility sector is up over 12% in 2016, leading all others by a wide margin. Even the resurgent Energy sector, which is up 12% over the past month, trails Utilities by a wide margin:
Sectr-3-20-16
With all of the strong price performance in the Utility sector, we wondered if there were any dividend stocks left that weren’t already above their consensus analyst price targets. We came up with these 5 stocks…
Click here to read more…

Dividend Paying ETF’s Beating The Market In 2016

by Robert Hauver
Our last article, “Market Correlations & Hedging Strategies”, covered some ETF’s that have an inverse correlation to the market, and have been beating the S&P 500 handily over the past several months.

This article goes one step further – how’d you like to find some ETF’s that are not only good market hedges, but also pay dividends? We found 3 such vehicles – they may not be high dividend stocks, but 2 out of 3 pay monthly, and all 3 go ex-dividend in March:
Click here to read more…

Market Correlations And Hedging Strategies

by Robert Hauver
Have you noticed any surprising market correlations over the past several months? Much has been written in the press about the US market’s increasingly high correlation with Oil & Basic Materials prices, the Chinese stock market, and High Yield Bonds.
Income investors have seen their once-steady dividend stocks decline over the past few quarters, as the market punished all things Energy-related. In fact, some of these stocks, (the ones which have maintained or even increased their dividends), have even moved into the realm of high dividend stocks, even though they’ve all risen significantly from their 52-week lows over the past few months.
Here are just some the highest dividend yields in the Energy section of our High Dividend Stocks By Sectors Tables.
ENERGYDIVS

Crude Oil prices have had a strong correlation with the S&P 500:
Click here to read more…

Copyright 2016 DeMar Marketing. All rights reserved.

2 Small Bank Dividend Stocks Outperforming The Market

by Robert Hauver
With the specter of Fed interest rate hikes looming over the market for the past 2 years, many interest-rate sensitive stocks have gotten sold off. However, there are some stocks which will benefit from higher rates, namely banks, and, in particular, small banks.
Why small banks vs. large ones? Because smaller banks stick to traditional lending and deposits as their business model, whereas larger banks also play with derivatives and other forms of trading to make $.

We found 2 small/micro cap bank stocks, which have gotten good support from the market in 2015: Click here to read more…

These 2 High Dividend Stocks Are Outperforming The Market

by Robert Hauver

2015 has been a rocky road for most investors, including income investors, who’ve seen many traditionally strong dividend stocks get clobbered, due to declining Oil prices, and/or the threat of future interest rate rises by the Fed.

We went looking for some high dividend stocks which have started to recover, but still are quite a bit below their 52-week highs. We came up with these 2 companies, from 2 different sectors – Industrial Goods and Basic Materials.
CNX-SUMRY

Profiles: Click here to read more…

High Dividend Stocks Going Ex-Dividend In November

by Robert Hauver

We searched through our High Dividend Stocks By Sector Tables to find some stocks going ex-dividend this coming week. Not surprisingly, we found some of the most attractive dividend yields in the Energy sector. However, before you run away in fright from this beaten-down group, let us reassure you that these aren’t just your run-of-the-mill, hated drillers or exploration companies. In fact, they all provide services to the Energy sector, via long-term, fee-based contracts.

4 out of these 6 stocks, (GMLP, NAP, DLNG, and GLOP) provide contract shipping to the natural gas industry, and the other 2,(GPP and ETP), provide pipeline, storage, and logistics services to the oil and gas industry.:

Click here to read more…

This Week’s Top 5 Performing Dividend Stocks

by Robert Hauver
With all of the recent market turmoil, we thought we’d take a look at which dividend stocks performed the best this past week. While these aren’t high dividend stocks, we screened for stocks with a dividend yield above 3%, and a moderate dividend payout ratio.

Not surprisingly, these top 5 dividend stocks are from 2 well-known defensive sectors – Utilities and Consumer Staples, which are also the 2 best performing sectors of the past month.

Performance: These stocks have all outperformed the market this week, and over the past trading month, vs. a -1.36% weekly decline and a -2.07% monthly decline for the S&P 500. One of the big reasons for their strong support by the market right now is that they all have low beta’s, which signifies a low correlation to market volatility.

Click here to read more…

A Safe Haven: Community Bank Dividend Stocks

by Robert Hauver
Looking for a place to hide from the recent market turmoil? With the market’s 800+ point swings over the past week, you’re surely not alone in looking for more stability. Interestingly, it has been hiding in plain sight for much of the past year, in the Community Bank industry.
These are micro cap stocks, usually with market caps below $300M, and with a small amount of branches, often fewer than 5-10. We’ve held various community bank dividend stocks over the years, and, over the past 52 weeks, one bank in particular has been a safe haven holding for us: Access National Corporation, (ANCX), a 5-branch bank in the DC area.
ANCX-PERF
Profile: Access National Corporation is the parent of Access National Bank, a commercial bank serving middle market businesses and associated professionals throughout the Washington D.C. region. The Banks core services include commercial credit, deposit, investment, cash management, private banking and real estate finance. The Bank also has subsidiaries that provide wealth management, retirement planning, securities brokerage and equipment leasing.
ANCX-DCMAP
Dividends: Click here to read more…

2 Consumer Staples Dividend Stocks Beating The Market

By Robert Hauver

Looking for stable dividend stocks to ride out the ups and downs of the market in the last half of the year?
The final 6 months, especially October, are often more volatile than the 1st half of the year.
Historically, October has been 40% more volatility than the 11 other months.
Couple that with October and September having the lowest average historical returns, and you can
see why investors seek out defensive stocks to hide behind during the last 2 quarters.
Click here to read more…

Small Bank Dividend Stocks Outperforming In 2015

by Robert Hauver
Looking for outperforming dividend stocks to capitalize on rising interest rates? As it turns out, many regional and small bank stocks and ETF’s have been outperforming the S&P 500 handily over the past month, and year-to-date. Here’s a look at how 4 of these ETF’s have trumped the S&P 500 in these periods:
RegBankETF
Digging down further, we culled out the stocks from the universe of outperforming small and regional banks, to find the high dividend stocks within this group. As you can see, these are a far cry from the 6% to 12% high yielding stocks which we usually write about, and also track in our High Dividend Stocks By Sector Tables. This group has a dividend yield range of 2.42% up to 3.53%, and its Dividend Payout Ratio range is quite wide, from a low of 30.80%, up to 92.60%:
REGBK-DIV
Performance: All of these small bank stocks have outperformed the S&P 500 over the past month, and the overwhelming majority have also outperformed over the past year and year to date:

Click here to read more…

High Dividend Growth Stocks In 2015

by Robert Hauver
Looking for the sweet spot between dividend growth and dividend yield? We parsed the data from S&P 500 dividend stocks through April 30, 2015, to find out which dividend stocks have had strong dividend increases in 2015.
Sector-wise, Consumer Discretionary and Tech S&P 500 stocks had the best combination of overall performance and dividend increases. Even though Healthcare has been the leading sector for ages, it’s not known for having a lot of dividend paying stocks. In addition, this sector’s dividend increases haven’t kept pace with its rising share prices, which has also contributed to a lower overall dividend yield.
SCTRS-DIVYIELD-5-26-15
We found 3 prospects which had a good combination of dividend yield and dividend increases in 2015.
Click here to read more…

Copyright 2015 DeMar Marketing All Rights Reserved

The 7 Best Dividend Stocks In 2015

by Robert Hauver
Are you wondering which dividend stocks outperformed in the first quarter of 2015? The past 6 months have been a roller coaster for many dividend stocks – thanks to the Crude Oil Crash, quite a few Energy-related stocks either trimmed or eliminated their dividends altogether.

The 7 top performers for Q1 2015 are a diverse group, ranging from publishing to business services, to apparel, to home furnishings, to Refining and Energy Services.
Interestingly, 2 of the top 3 performers in this group have a modest dividend yield of less than 2%, and a total of 4 out of 7 have low dividends:
BEST-MKTCAP

PERFORMANCE: Other than Courier Corp., which is being bought out, the main catalyst for the outperformance of these stocks has been good earnings. (More about ALDW’s possible buyout below).
BEST-PERF

Dividends: We’ve been tracking the 2 highest yielding stocks within this group in the Energy section of our High Dividend Stocks By Sectors Tables– CSI Compressco, (CCLP), and Alon Partners LP, (ALDW).
Click here to read more…

Copyright 2015 DeMar Marketing. All Rights Reserved

2 Undervalued Small Cap High Dividend Stocks With Big Earnings Growth

by Robert Hauver

Looking for undervalued high dividend stocks with dependable dividend payouts? We’ve found 2 very different small cap stocks that fit the bill; one is a conglomerate, and the other is a Tech stock. They both have strong earnings growth, and they look undervalued on a PEG basis.
Small Caps have outperformed other groups so far in 2015:
Cap-Style-3-24-15

Our High Dividend Stocks By Sectors Tables track both of these stocks. You can find CODI in the Financials section, and EVOL in the Tech section.
CODI-EVOL-CAP
Click here to read more…

Copyright 2015 DeMar Marketing. All Rights Reserved

3 Top Performing High Dividend Stocks In 2015

by Robert Hauver
Looking for high dividend stocks with market support in 2015? As always, we are too, and we were surprised where we found them – in the Energy sector. It was just weeks ago that this sector took a massive beating, with some energy dividend stocks losing up to 50% of their market value, as the price of crude oil collapsed.
However, it’s a new year and a new day for many Energy stocks – the ever-fickle market has decided that oil isn’t going to $10 a barrel, and that, maybe, some of these companies will survive after all, since they have viable business models.
Our High Dividend Stocks By Sector Tables, has been tracking these 3 high yielding stocks since early 2014. All 3 of them are LP’s, which had relatively recent IPO’s:
DKL-DLNG-IPO
(You can find brief profiles for all 3 stocks at the bottom of this article.)
Click here to read more…

Copyright 2015 DeMar Marketing All rights reserved.

Homebuilder Dividend Stocks With Hidden High Yields

by Robert Hauver
With all of the recent market volatility and dividend cuts in Energy-related dividend stocks, income investors are looking to other sectors for income stability.
(We maintain High Dividend Stocks By Sectors Tables which feature many high yielding stocks for each sector.)

Although it’s not known for having any high dividend stocks, you may want to consider the Housing industry for some income plays and potential price appreciation.

We’ve found 3 homebuilder stocks which have been beating the S&P 500 over the past week, month and quarter. Two of these three stocks have also outperformed the market over the past year:
PHM-DHI-PERF

Strong Growth Ahead in Housing: Economists are predicting a big rise in household formations in 2015, a key figure for Housing. IHS predicts that 2015 will see the addition of 1.08 million new households, with economic growth driving up the rate of new formation. Single family housing production is expected to rise 26% in 2015. DHI and PHM both get a large part of their revenue from sales in warmer states, where home sales growth is expected to continue to outpace national growth, at a pace of 24%. TOL caters more to the upscale market, and has good exposure to the high end areas of New York City, and Washington, DC.

Dividends: PHM cut its quarterly dividend from 2009 through 2012, and reinstated in August 2013 at $.05. It maintained it at $.05 until December 2014, when it raised it by 60%, to $.08. TOL doesn’t pay a dividend yet, but, as you’ll see further below, it does have attractive options yields.
Covered Calls Options: You can greatly improve upon these quarterly dividends by selling options. These 3 trades all have call premiums which pay much more than PHM’s or DHI’s next quarterly dividends. In fact, the DHI call option pays over 15 times DHI’s next 2 quarterly dividend payouts.

Click here to read more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors or omissions.
Disclosure: Author is short put options on DHI, PHM, and TOL.
Copyright: 2015 Demar Marketing All rights reserved

3 Healthcare High Dividend Stocks Beating The Market Pullback

by Robert Hauver
Looking for a safe place to hide during this latest market pullback? Healthcare was not only the leading sector in 2014- it has also led the market for most of 2015. Here’s a look at how the Healthcare sector has fared vs. the S&P 500, over the last 3 months, which just about coincides with the market highs of September 18, 2014. The Healthcare sector is up 3.81%, vs. a -1.44% loss for the S&P 500:
XLV-SP-12-17-14
Digging further, we found 2 high dividend stocks within the Healthcare sector, which have both outperformed this sector and the market – HCP Inc., (HCP), (a Dividend Aristocrat), and Sabra Healthcare REIT, Inc., (SBRA).

Here’s a chart of these 2 dividend paying stocks over the same 3-month period, vs. the S&P 500. HCP is up nearly 10%, and SBRA is up nearly 7% during this period, vs. a -1.44% loss for the S&P 500:
HCP-SBRA-CHART-2014-12-17

Dividends: Our High Dividend Stocks By Sector Tables, lists both of these stocks, in the Healthcare section. In addition, we also follow a third related high yield stock- Sabra’s preferred stock issue, SBRAP, which currently yields nearly 7%, and has also beaten the market during this same 3-month period, having risen 3.08%.
Although HCP has a low 5-year dividend growth rate of 2.94%, it has increased its dividend per share for 29 consecutive years.

SBRA has raised its quarterly dividend from $.32 in 2011, to the current $.39 payout. Sabra amply covers its SBRAP preferred dividends by a factor of 3.22, i.e. its net income is 3.22 times its preferred dividend payout.
HCP-SBRA-DIV
Preferred Long-Term Yield: The table below summarizes your net annualized yield for SBRAP, based upon 2 conditions:
1. You were to hold SBRAP until its 2018 liquidation date
2. Sabra redeems/buys back your SBRAP shares at the call date
Since SBRAP is trading at $1.08 above its $25.00 liquidation price, we subtracted this amount from the dividends that you’d collect between now and 3/21/18. You’d end up with a $4.71 net profit, which equals a 5.54% annualized yield:
SBRAP1-ANN-Yield
Click here to read more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors or omissions.
Copyright: 2014 Demar Marketing All rights reserved

These Undervalued Refining Dividend Stocks Have High Options Yields And More Room To Run

by Robert Hauver
As the price of crude oil has fallen this year, most energy-related stocks have gotten hammered…except for some refining stocks. Why? Because lower crude prices mean lower feedstock costs for refiners, and actually pump up refiners’ profit margins. This fact has not gone unnoticed by the market, which has favored some refiners over other energy-related stocks in recent weeks.
This article covers 2 dividend stocks which are beneficiaries of this turn in fortunes – Marathon Petroleum, (MPC), and Phillips 66, (PSX). While these aren’t high dividend stocks, they do have high options yields, which we’ll cover later on in the article.
MPC has done much better than PSX in all of the following time periods:
MPC-PSX-PERF

However, PSX’s fortunes may be about to change – Goldman Sachs analyst Neil Mehta just added PSX and MPC to his recommended Buy list on 11/18/14, and PSX is up over 3.7% over the last week.
Profiles:
MPC is engaged in refining, transporting, and marketing petroleum products primarily in the US. It operates through 3 segments: Refining & Marketing, Speedway, and Pipeline Transportation.
MPC refines crude oil and other feed stocks at its 7 refineries in the Gulf Coast and Midwest regions of the US; and purchases ethanol and refined products for resale. Its refined products include gasoline, distillates, propane, feed stocks and special products, heavy fuel oil, and asphalt.
MPC also sells transportation fuels and convenience products in the retail market through Speedway convenience stores, and transports crude oil and other feedstocks to its refineries and other locations.
MPC markets its refined products to resellers, consumers, independent retailers, wholesale customers, marathon-branded jobbers, its Speedway convenience stores, airlines, transportation companies, and utility companies, as well as exports its refined products.
As of2/4/14, MPC owned, leased, and had ownership interests in approximately 8,300 miles of pipeline, as well as owned and operated 1,480 convenience stores in 9 states of the United States; and operated 5,200 independently owned retail outlets in the 18 states of the United States.

PSX – PSX Phillips 66 operates as an energy manufacturing and logistics company, operating in 4 segments: Midstream, Chemicals, Refining, Marketing and Specialties.
Refining buys, sells, and refines crude oil and other feedstocks into petroleum products, such as gasolines, distillates, and aviation fuels in the United States, Europe, and Asia.
Marketing and Specialties purchases for resale and markets refined petroleum products comprising gasolines, distillates, and aviation fuels in the United States and Europe. This segment manufactures and sells specialty products, such as petroleum coke, waxes, solvents, and polypropylene.
Midstream transports crude oil and other feedstocks to its refineries and other locations, as well as delivers refined and specialty products, also gathers, processes, transports, and markets natural gas; and transports, fractionates, and markets natural gas liquids in the United States.
Chemicals produces and markets ethylene, propylene, and other olefin products. It also manufactures and markets aromatics products, such as benzene, styrene, paraxylene, and cyclohexane, as well as polystyrene and styrene-butadiene copolymers.

Dividends: Click here to read more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors or omissions.
Copyright: 2014 Demar Marketing All rights reserved

These 2 Undervalued, Oversold High Dividend Stocks Yield 10-12% & Go Ex-Dividend Soon

by Robert Hauver
Looking for bargains in the high dividend stocks department? This article covers 2 relatively new dividend paying stocks, both of which have been hammered along with the rest of the Energy/Basic Materials complex over the past month. In October alone, the Energy sector is down over -13%, while the Basic Materials sector is down over -10%. A rising US $, plus fears of a global recession, and a glut of oil have put pressure on these groups.
However, we have 2 stocks which we feel represent attractive long term values for income investors, due to certain advantages that their operations enjoy:
NSLP-OCIR-INDUSTRY-IPO

Company Profiles:
New Source Energy Partners L.P.: NSLP is engaged in the acquisition and development of oil and natural gas properties in the United States, and is rapidly growing its Oilfield Services division. Asof 12/13/13, NSLP had 124,759 gross acres in the Golden Lane field in east-central Oklahoma; and 161 gross proved undeveloped drilling locations. Its estimated proved reserves on its properties consisted of 20.6 MMBoe. NSLP is based in Oklahoma City, Oklahoma.

OCI Resources LP: OCIR is engaged in the trona ore mining and soda ash production businesses in the US and internationally. As a natural soda ash producer, OCI Resources has a big cost advantage over synthetic producers. It has approx. 23,500 acres of subsurface leased/licensed mining areas in the Green River Basin of Wyoming. OCIR also processes trona ore into soda ash, which is a raw material in flat glass, container glass, detergents, chemicals, paper, and other consumer and industrial products. OCI Resources LP is based in Atlanta, Georgia.

Dividends: Our High Dividend Stocks By Sectors Tables, lists both of these dividend stocks, (in the Energy and Basic Materials sections).
Both stocks have whopper dividend yields, thanks to the fall pullback – OCIR’s dividend yield is nearly 10%, and NSLP’s is over 12%.
They should both be going ex-dividend soon, sometime around 1/30/15:
NSLP-OCIR-DIV
Click here to read more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors or omissions.

This Brand New High Dividend Stock Offers Good Price Gain Potential And A 6.7% Dividend Yield

By Robert Hauver
Who says you can’t have it both ways? Preferred stocks, often pooh-poohed as being stodgy, with minimal price gains, are having a good year in 2014, with many issues outperforming the market via price gains alone.
If you want well-covered dividend income, but, also some potential for price gains, you ought to consider buying the newest preferred shares issued by CHS Inc., (CHSCM), a large cooperatively-owned Midwestern US company which deals in both Energy and Agriculture.
CHS is a bit different from most publicly traded companies – they don’t have common stock. Instead, they issue preferred shares, which trade on the NASDAQ.
Profile: CHS Inc. is a globally integrated Fortune 100 company supplying energy, crop nutrients, grain marketing services, animal feed, insurance, financial & risk management services and food & food ingredients. CHS employs over 10,000 people across North America and in 24 other countries around the globe.
CHS is committed to a cooperative business model, as reflected by its ownership, made up of 600,000 producers, the majority whom are throughout 1,100 member cooperatives and 77,000 are served through CHS local service centers. CHS also has 16,000 preferred stockholders. (CHS doesn’t have any common shares). The company is governed by a 17-member board of farmers and ranchers, who are elected by its cooperative-owners and producer-owners.

Dividends: We’ve had our sights on CHSCP for years, having listed it in our High Dividend Stocks By Sector Tables, (and all of the CHS preferred shares are now listed in the Consumer Staples section). The thing is, we’ve never been able to buy any of its shares near their $25 liquidation price, due to price gains on them…until now.
Last week, CHS issued its newest series of preferred shares –

Click here to read more…
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors or omissions.

3 High Yield Plays On Outperforming Energy High Dividend Stocks

by Robert Hauver
The Energy sector continues to lead all other sectors in 2014. As of 7/16/14, this sector, as measured by the XLE etf, was up 12.73% year to date, vs. 7.16% for the S&P500, and only 3.3% for the DOW. The XLE etf is dominated by large cap dividend stocks, such as Conoco Phillips, (COP), which is its 4th largest holding, after Exxon, Chevron, and Schlumberger.
When looking at performance, however, the majors, such as Exxon and Chevron, have greatly underperformed independent Conoco, which is up over 22% so far in 2014, vs. gains of only 5.2% for Chevron and 2.6% for Exxon.
COP also has the second highest dividend yield in the group, at 3.39%, having just raised its quarterly dividend from $.69 to $.73.
We screened for other dividend paying independent oil & gas stocks, to see if there are some other worthwhile outperformers in that sub-industry. We came up with Delek Logistics LP, (DKL), a relatively new, (NOV 2012 IPO),small cap high dividend stock, which we recently added to our High Dividend Stocks By Sectors Tables.

Dividends/Distributions: After spinning off its refining division, Phillips 66 (PSX), in 2012, COP has gone from paying $.66 to $.69, and now $.73 a quarter. DKL has raised its quarterly distribution 5 straight times since its IPO.
COP-DKL-DIV

Options: Although COP just went ex-dividend, you can still earn an attractive options yield on it, via selling November 2014 covered calls, which will also allow you to either capture the next quarterly dividend, in October, or get paid even more $ if your shares get assigned. DKL has a much higher option yield, but its shares are much closer to its strike price.
Click here to learn more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.

3 Energy Sector High Dividend Stocks Outperforming In 2014

by Robert Hauver
After rising nearly 24% in 2013, the Energy sector continues to be a winner in 2014, having risen 6.69% as of May 21, 2014. But how have dividend stocks within this sector fared? As it turns out, there are 3 winners from the Energy section of our High Dividend Stocks by Sector Tables, that have handily outperformed the market as a whole, and whose performance has also beaten the Energy sector’s by a long shot in 2014.
These 3 energy stocks are all LP’s, which offers you additional benefits – LP’s must pay out 90% of their earnings, in return for not paying taxes, which often results in a high dividend yield; and tax efficiency, since the high yield distributions that you receive will be partially sheltered, via offsets, such as depreciation, on the K-1 form you’ll receive at tax time.
The full company profiles are at the bottom of this article.
Here’s how these stocks have fared in 2014 and over the past trading month. Compare this with the S&P, which was up 2.15% year-to-date, as of 5/21/14, and up 13.11% over the past year:
GLPTLP-PERF
Dividends: All 3 of these stocks yield over 5%, (GLP yields over 6%), and go ex-dividend in late July/Early August. They’ve all steadily raised their dividends over the past 5 years. Coverage-wise, GLP leads the pack, with a 2.6x distribution coverage ratio. (LP’s refer to their dividends as distributions, and their shares as units.) Click here to read more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.

Top Performing Utility Dividend Stocks So Far In 2014

by Robert Hauver
The market has had a bumpy ride so far in 2014, with February turning in the best performance, rising over 4%, after January’s -3.6% pullback. Cap this off with a less than 1% gain for the S&P 500 in March, and you’ve got an unimpressive 1.3% gain for the first quarter:
SP-4-9-14
With this kind of up and down ride, you’d want to find some dividend stocks which offer defense, in addition to income. With the pullback in many biotech stocks, the Healthcare sector no longer leads,(although it’s still up nearly 5%), but has given way to the Utilities sector, which is up over 10% year-to-date.
Here’s a look at the chart for the Utilities ETF, XLU:
XLU-2014-04-08
We looked further into XLU’s top holdings, and came up with these top 5 utility stocks, all of which are large cap dividend paying stocks. Another common feature is that they all have somewhat lower forward P/E’s, meaning that their earnings should improve in their next fiscal year. Duke, DUK, and Southern, SO, have the lowest P/E’s, relative to their 5-year P/E ranges:
UTIL-PE
This is how they’ve performed year-to-date, and over the past month, and over the past 52 weeks. Nuclear-based Excelon, EXC, has outperformed the pack year-to-date, and over the past month, but is still up only 3.62% over the past year. Contrasting with that performance is more steady Next Era Energy, NEE, which has made over half of its 1-year 25.90% gains, by rising 13.61% in 2014:
UTIL-PERF
Dividends: With their 4%-plus dividend yields, Southern CO., SO, and DUK, are both listed in the Utilities section of our High Dividend Stocks By Sector Tables. Although their yields are lower, Dominion, D, and NEE, have the best 5-year dividend growth rates:
UTIL-DIV
Options: If you want to add more downside protection to these stocks, selling covered calls offers you more immediate income, and a lower breakeven. NEE has the most attractive call options of the group. This June $97.50 call pays $2.60, over 3 times NEE’s next quarterly dividend. (Our free Covered Calls Table has more info on this and over 30 other trades.)
UTIL-NEE-CALL
Here are the major income scenarios for this trade. The $97.50 strike price is $1.07 above NEE’s price/share, which amply rewards you if your shares get assigned prior to the ex-dividend date for the $.73 dividend:
UTIL-NEE-CALLINC
Selling cash secured put options is another way to profit from these defensive stocks. In fact, if you sell puts below the stock’s share price, you’ll get an even lower breakeven, and improve upon their defensive nature. This is another June trade, but this put has a $95.00 strike price, and a $92.05 breakeven, which is 4.5% below NEE’s price/share. You won’t receive any dividends, but, just like selling calls, you’ll be paid your option premium within 3 days of the trade, often sooner. You can find more info about this and over 30 other trades in our Cash Secured Puts Table.
UTIL-NEE-PUT
Financials: It’s a mixed bag, Dominion and Next Era have an edge over the rest of the group for some of these metrics, but they do carry more debt:
UTIL-ROE
Valuations: Excelon has the lowest valuations for these metrics:
UTIL-PB
Disclosure: Author was long shares of Southern, SO, at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.

The 5 Best Performing High Dividend Stocks In 2014

by Robert Hauver
We thought we’d take a different approach in this article, and look at high dividend stocks within the S&P 500 that are performing well in 2014, vs. those that are oversold and/or undervalued. Not surprisingly, 3 out of 5 of these top dividend stocks are from the Utilities and Healthcare sectors, which are the 2 top sectors year to date.
TOPDIVSTKS-PROFILE
Performance through 3/17/14: A Financial stock, AIV, is the top performer of this group so far in 2014, but, interestingly, made most of its gains in January and February, and is only up around 2% in March.
Garmin, (GRMN), a tech stock, has made all of its net gains over the past month.
The more defensive Utilities stocks, PEG and AEE, show a more balanced performance, both rising in January and February, in addition to the past trading month.
TOPDIVSTKS-PERF

Dividends: With its 4%-plus yield, we’ve added Public Enterprise Group, (PEG), to the Utilities section our High Dividend Stocks By Sector Tables. You’ll also find Lilly, (LLY), in the Healthcare section of the tables.
TOPDIVSTK-DIV

Options: 2 of these dividend paying stocks also have fairly high options yields – Garmin and Lilly. We’ve listed July Covered Call trades for both stocks below. Both stocks have ex-dividend dates for their next quarterly dividends, prior to the July call expiration, so you can effectively increase your overall yield substantially, via the combo of the dividend and option yields.
Garmin’s call option payout is nearly 5 times its dividend, and Lilly’s call option pays 4 times its dividend.
GRMN-LLY-CALLS
You can find more details on these and over 30 other trades in our free Covered Calls Table.
Both trades have call options which are enough above the stock’s share/price, to amply replace the dividend income, via price gains, if your shares get assigned prior to the ex-dividend date.
Here are the major income scenarios for the Garmin trade:
GRMN-CALLINC
Cash Secured Puts: Our Cash Secured Puts Table also lists July put trades for Garmin and Lilly, (along with over 30 other trades). These put option trades both have strike prices which are below these stocks’ current price/share, thereby achieving a lower breakeven:
TOPDIVSTK-PUT
Financials:
TOPDIVSTK-ROE
Valuations:
TOPDIV-PB

Disclosure: Author held no positions as of yet in any of the stocks mentioned in this article at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

Buy This New High Dividend Stock Below Par For An 8% Plus Yield

by Robert Hauver
One of our favorite high dividend stocks, Seaspan, (SSW), just issued a new “E” series Preferred stock, which pays 8.25% per annum, via quarterly dividends. We’ve owned SSW and its various preferred shares off and on through the years, and we’ve had very good results with both the common and the preferred.
In particular, SSW’s preferred shares have been a very reliable dividend income source, and they’ve also been pretty resilient to market pullbacks. We list both the new E series preferred, (SSW-E), and SSW in our High Dividend Stocks By Sector Tables Industrials section.
Company Profile: Seaspan provides many of the world’s major shipping lines with outsourcing alternatives to vessel ownership by offering long-term leases on large, modern containerships combined with industry leading ship management services.
Seaspan’s managed fleet consists of 105 containerships, representing a total capacity of over 800,000 TEU, including 32 newbuilding containerships on order scheduled for delivery to Seaspan and third parties by the end of 2016.
Seaspan’s current operating fleet of 71 vessels has an average age of approximately seven years and an average remaining lease period of approximately five years. SSW’s long-term lease business model affords it stable cash flow, with which to pay dividends.

Preferred & Common Dividends:
Buying newly issued preferred shares often offers the retail investor a chance to buy shares below or near the liquidation, par value.
Why is this important? Because, when and if the shares get called in by the issuing company, you’ll also realize a capital gain, if you bought them below the par value. In this case, though, since these shares are cumulative, AND aren’t callable by Seaspan until 2019, so you’ll have ample time, 5 years, to collect around $10.31 in quarterly dividends, and bring your breakeven way below the $25.00 par value.
These shares just started trading on 2/10/14, and are trading right around par. Like many preferred shares, the various websites often show a different ticker symbol for this stock.
The 1st ex-dividend date should be around 4/27/14:
SSW-E-DIV
SSW also has a good dividend yield on its common shares:
SSW-DIV
Options
If you’re interested in more immediate income, there’s an attractive covered calls trade for SSW, which expires in August 2014. The at-the-money, August $22.50 call options are currently paying 2 times the amount of SSW’s next 2 quarterly dividends.
You can see more info on this and over 30 other covered call trades in our free Covered Calls Table.
SSW-CALL
The $22.50 strike price is also $.38 above SSW’s $22.12 price, so it offers a small capital gain opportunity as well:
SSW-CALLINC

We haven’t added any put trades for SSW to our Cash Secured Puts Table as of yet, since its puts aren’t yielding very much currently.
Author: Robert Hauver,copyright 2014 DeMar Marketing, All Rights Reserved.
Disclosure: Author owned shares of SSW and SSW-E at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

Dow Dividend Stocks For 2014 – Dividends vs Covered Calls

by Robert Hauver

After the big gains in 2013, (and subsequent declining yields), income investors are scouring the market for safe yields in 2014. With this in mind, we took a look at the 2 highest yielding dividend paying stocks in the DOW 30: AT&T, (T), and its arch rival Verizon, (VZ). In particular, we compared these 2 stocks’ next quarterly dividends to covered call premiums, in order to see if you could increase your yield, while gaining some downside protection.

DIVIDENDS: Both of these stocks are listed in our High Dividend Stocks By Sector Tables, in the Telecoms section. AT&T has a higher dividend yield than Verizon, but Verizon’s 5-year dividend growth rate trumps AT&T’s.
T-VZ-DIV
COVERED CALLS: These April 2014 covered call options trades both have strikes above each stock’s price/share, which offers you a chance for some assigned price gains, in addition to increasing the yield above that of the dividends:
TVZ-CALL
Here are the 3 main income scenarios for each trade. You can find more details for these 2 trades and over 30 others in our free Covered Calls Table.
T-CALLINC
Since VZ’s strike price is further above its share/price, you have more of a chance for potential price gains:
VZ-CALLINC

EARNINGS: To be sure, neither of these stocks are growth stocks – here’s how they stack up against each other:
TVZ-PEG
VALUATIONS: The good news is that both stocks look to have more attractive P/E’s in 2014. VZ is commanding a premium over T in its Price/Book and P/E ratios.
TVZ-PB
FINANCIALS: VZ has used more debt for financing than AT&T has, and has a higher Operating Margin and ROI:
TVZ-ROE
PERFORMANCE: While VZ lagged the market during 2013, AT&T went absolutely nowhere over the past 52 weeks:
TVZ-PERF
Author: Robert Hauver,copyright 2014 DeMar Marketing, All Rights Reserved.
Disclosure: Author had no positions at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

2 Dividend Paying Stocks With High Yield Covered Calls

by Robert Hauver
Although we often cover high dividend stocks, this article will focus on 2 dividend paying stocks which have only average dividend yields. However, they both have high options yields for their covered calls and cash secured puts, which more than make up for their dividends. In fact, these calls and puts pay over 14 times the amount of these stocks’ upcoming quarterly dividends. The second pick, listed at the bottom of this article, has 40%-plus annualized yields on both its covered call and cash secured put options.

1. Whirlpool Corp., (WHR), founded in 1898, manufactures and markets home appliances worldwide. The company’s principal products include laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers, and other portable household appliances. It also produces hermetic compressors for refrigeration systems. The Whirlpool brand is the world’s No. 1 global appliance brand. Whirlpool also owns many other marquee brands, including Maytag, Kitchen-Aid, Jenn-Air, and Amana.

WHR’s price/share has had quite a run up over the past year:
WHR-PERF1113
Most likely due to its quickly growing sales, which have outrun its price/share, and make it still appear undervalued on a PEG basis:
WHR-PEG NOV
WHR has a modest dividend yield…
WHR-DIV1113
But its covered calls have much higher yields. In the trade below WHR’s calls outpay its dividends by over 16 times :
WHR-CALL nov
There are 3 main scenarios for this covered call trade:
WHR-CALLINC NOV
You can see more info for this and over 30 other covered call trades in our free Covered Calls Table.
WHR’s put options also have a big payout that’s much higher than its dividends:
WHR-PUT nov
You can find more details for this and over 30 other cash secured put trades in our free Cash Secured Puts Table.

2. Questcor Pharmaceuticals, (QCOR), is a biopharmaceutical company, which provides drugs for the treatment of multiple sclerosis, nephrotic syndrome, and infantile spasms indications. It primary product is H.P. Acthar Gel, for which there are several FDA-approved applications. QCOR has enjoyed huge growth over the past 5 years, growing its revenues over 59%, and its EPS by nearly 44%. Its trailing 12-month EPS growth now stands at nearly 65%, and its revenue has grown by almost 69%.
Like WHR, QCOR has had a big run up in its share price over the past year – it’s up 164% from its 52-week low, and now is around 15% below its 52-week high. It has pulled back from its high of $74.42, due to concerns about an ongoing government investigation into its promotional practices. This concern has also led to high short interest of over 21%. However, it may take around 3 years for this case to play out.

In the meantime, QCOR has some very high options yields, which dwarf its dividend yield:
This Covered Call trade expires in April, and pays $10.70, a nearly 40% annualized yield.

(This trade is also listed in our Covered Calls Table):
QCOR CALL NOV
QCOR also has high yield cash secured puts. The April trade below offers you a nearly 44% annualized yield, and also gives you a breakeven that’s over 22% below QCOR’s price/share.
QCOR-PUT NOV
(This trade is also listed in our Cash Secured Puts table. All of our options tables are updated throughout the trading day.)

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was hort QCOR put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

An Oversold, Undervalued Blue Chip Dividend Stock With High Options Yields

by Robert Hauver

This article will focus on the “Rodney Dangerfield” of drilling dividend stocks, UK-based Ensco plc, (ticker ESV), which has had big dividend and earnings growth, and looks poised to continue that trend. Unfortunately for its shareholders, the market has given ESV little respect over the past year, sending it down to an oversold price/share currently:
ESV1-CHART
ESV1-PERF

Undervalued Earnings: ESV has concentrated on modernizing its fleet, and has one of the youngest fleets in the drilling industry, with 9 new rigs delivered over the past 3 years, and 8 more to be delivered through 2015. This has helped it achieve higher margins than its competitors, and has also contributed to strong growth over the trailing 4 quarters:
EVS1-QTRLY

Analysts are estimating continued EPS growth in 2014, which, combined with ESV’s low P/E, show it to be undervalued on a PEG basis:
ESV1-PEG
Looking further into the future, ESV also has a low 5-year forward PEG ratio of .60:
ESV1-EPS5YR
More Valuations: ESV also looks undervalued vs. its industry on a Price/Sales and a Price/Book basis:
ESV1-PB
Strong Dividend Growth: ESV has raised its quarterly dividend all the way from $.025 in 2008, to $.50 in 2013.
ESV1-DIV
Options: Although ESV isn’t in the universe of high dividend stocks, it does have high options yields. You can substantially increase your yield on ESV’s dividends, via selling Covered Calls.
This March 2014 trade, from our Covered Calls Table, has a $55.00 strike price. The call premium pays 3 times what ESV’s next 2 dividends pay. You’ll also get paid this covered call premium now, vs. having to wait for ESV’s next 2 dividends to be paid out:
ESV1-CALL
We’ve listed the 3 major scenarios below for this call options trade:
ESV1-CALLINC
Puts: If you want to achieve a lower breakeven cost now, selling Cash Secured Puts is the way to go. This put options trade also expires in March 2014, and pays en even higher options premium, of $3.90, while giving you a breakeven of $51.10, which is just above ESV’s 52-week low. You can see more details for this and over 30 other Put options trades, in our Cash Secured Puts Table:
ESV1-PUT
Financials: As we mentioned above, ESV enjoys much higher margins than its industry averages. It carries a bit more debt, but it does have an Interest Coverage ratio of 11.52.
ESV1-ROE
Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author had no ESV stock or options positions yet at the time of this writing, but may initiate positions over the next 72 hours.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

A High Flying Dividend Stock With Double Digit Covered Calls And Put Options Yields

by Robert Hauver

Although we normally cover dividend paying stocks which also have options, this article focuses on a dividend stock that has already paid its annual dividend. However, as you’ll see below, its options yields heavily eclipse its dividends.
Sitting up at the top of our free Covered Calls Table is Himax Technologies, (HIMX), a semiconductor stock, which currently has a call option yield of nearly 14% for its December $9.00 call options. Although HIMX already went ex-dividend for its annual dividend in July, this Dec. covered call trade pays over 4 times HIMX’s annual $.25 dividend:
HIMX1-CALL
Since there aren’t dividends involved, there are two main scenarios for this trade:
A) Static – You’ll collect $1.15 in call options premium now, and keep your shares of HIMX, if it doesn’t rise above the $9.00 call price between the time of the trade and its December 2013 expiration.
B) Assigned – If HIMX does rise above the $9.00 call price between the time of the trade and its December 2013 expiration, your HIMX shares will be assigned/sold, but you will receive an additional $.53 in price gain, (the difference between the $9.00 strike price and HIMX’s $8.47 price/share).
HIMX1-CALLINC
HIMX also has very attractive put options. This December trade, from our Cash Secured Puts Table, pays just over 4 times HIMX’s $.25 dividend, and it offers a breakeven cost that is 18% below HIMX’s $8.47 cost per share. Considering that this stock has gained over 250% year-to-date, selling puts below its share price may be even more appealing than selling covered calls:
HIMX1-PUT
HIMX1-PERF
A big turnaround in earnings: HIMX has had negative earnings growth over the past 5 years…
HIMX1-PEG5YR
…but this has reversed itself rapidly during the most recent 4 quarters:
HIMX-QTRLYEPSREV
Analysts are predicting big Earnings growth for HIMX in 2014, due to its quickly developing relationship with Google, which has invested in HIMX’s subsidiary, Himax Display, in order to lock in HIMX as a supplier of LCOS modules for Google Glasses. Even after its huge price gains this year, HIMX still looks undervalued on a forward PEG basis, as it has a very low 2014 PEG of .34:
HIMX1-PEG

Additional Valuations: HIMX’s Price/Tangible Book is higher than its Industry averages, but its Price/Sales is lower.
HIMX1-PB
Financials: HIMX has much better Mgt. Efficiency ratios, a higher Operating Margin, and lower debt, than its peers:
HIMX1-ROE
Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was long HIMX shares and short HIMX put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

How To Buy This Blue Chip Dividend Stock 9% Below Its 52-Week Low

by Robert Hauver

One of the world’s most venerable blue chip dividend stocks, International Business Machines, (IBM), has gotten hammered by the market, since hitting a high of over $213.00 in March, and is now very oversold:

IBM-CHART8-23-13

IBM’s disappointing second quarter 2013 earnings report in late June didn’t help matters – sales and earnings were both down. One bright spot was that estimated services backlog at June 30 was up 3% year over year.

IBM-Q2-13QTR

Earnings Forecast 2013-2014: The average analyst EPS growth forecast for IBM in 2014 is currently 8.52%, giving it a 1.46 2014 PEG value, so we can’t say it’s undervalued on a growth basis:

IBM-AUG-PEG

However, on a P/E and Price/Sales basis, it does look cheaper than its Industry’s averages. Part of IBM’s problem has been the slowdown in Europe, but, it looks like that area may finally be pulling out of its recession in the next few quarters.

IBM-AUG-PB

Dividends: IBM has had a good dividend growth rate over the past 5 years, and increased its quarterly dividend again in May, to $.95, from $.85.

IBM-AUG-DIV

Thinking long term: Is a dominant company like IBM going to fade away? We don’t think so. Neither does Mr. Long Term himself, Warren Buffett- he’s a major buyer of IBM, having bought shares since Q3 2011, through Q2 2013. IBM is now Berkshire Hathaway’s 3rd largest holding, at 14.62% of its portfolio.

How to play it safe with long-term put options: If you’re leery of IBM falling further, your best bet may be to sell cash secured put options below IBM’s share price. We’ve laid out a January 2015 put trade below, which gives you a breakeven cost of $166.40, which is over 9% below IBM’s 8/23/13 share price of $185.16. The Jan. 2015 $185.00 put option pays well over 3 times what IBM’s dividends will pay over the next 17 months. (Please note that, unlike covered call sellers, put sellers don’t receive dividends.)

You can find more details on this and over 30 other put trades in our free Cash Secured Puts Table:

IBM-AUG-PUT

We also list a covered call trade for IBM, along with over 30 other covered calls trades, in our free Covered Calls Table.

Financials: Thanks to its ongoing stock buyback program, IBM has a very high Return On Equity ratio of over 83%. Its Operating Margin is also much higher than industry averages. It carries more debt, but it has a strong Interest Coverage figure of 41.85:

IBM-AUG-ROE

Performance: IBM is just 1.43% over its 52-week low, as of 8/23/13. As we’re heading into the market’s weakest months, Sept. and Oct., it may go lower, and offer even more compelling, higher put-selling yields and lower long term breakevens.

IBM-AUG-PERF

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short IBM put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

These Covered Calls Offer Double Digit Yields

by Robert Hauver

There are 2 dividend stocks in our Covered Calls Table which are currently offering high options yields: MDC Holdings, (MDC), and Hooker Furniture, (HOFT). We previously wrote about MDC, and its call options continue to offer good yields. Both of these companies have gotten an earnings boost from the US Housing Recovery, and look to be on track for continued earnings growth over this year and next year:

MDC-HOFT-QTRLY

40 year old MDC is a homebuilder, based in Denver, Co which sells its new homes throughout the US, under the name “Richmond American Homes”.

Virginia-based HOFT is a a home furnishings marketing and logistics company, Which, together with its subsidiaries, designs, imports, manufactures, and markets residential furniture products in the US.

Dividends: MDC pre-paid 3 of its 2013 quarterly dividends in December 2012, to avoid a higher dividend tax rate for its shareholders. It should pay its next $.25 dividend in November 2013:

MDC-HOFT-DIV

Options: Neither of these companies are high dividend stocks, but they do offer high options yields, via their November covered call options, which are far enough out of the money, that you can also potentially participate in some price gains. There’s also an attractive put selling trade for MDC, which is listed in our Cash Secured Puts Table.

There are 3 basic scenarios for these covered call trades:

(A) Static – The stock doesn’t rise to or above the option strike price before or near the ex-dividend date, in which case you keep the shares, and you collect the dividend and option $.

(B) Assigned – The stock does rise to or above the option strike price before or near the ex-dividend date, in which case you must sell the shares, and you collect the price gain $ and option $, but no dividend.

(C) Assigned after ex-dividend date – The stock does rise to or above the option strike price AFTER the ex-dividend date, in which case you must sell the shares, and you collect the price gain $, option $, and the dividend $.

MDC-CALL

MDC-CALLINC

HOFT-CALL

HOFT-CALLINC

Performance: Like other homebuiders, MDC has pulled back in price over the past few weeks, due to concerns that Fed tapering will continue escalate rates and slow down housing demand. HOFT is under 4% below its 52-week high:

MDC-HOFT-PERF

Financials: Both firms work on low Operating Margins, and HOFT has a cleaner balance sheet, being debt-free:

MDC-HOFT-ROE

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short MDC put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

2 High Yield Covered Calls Trades

by Robert Hauver

Looking for quick income from your trading? There are 2 trades sitting near the top of our Covered Calls Table, which offer annualized yields of well over 25%. These aren’t high dividend paying stocks, but, rather, they’re dividend stocks with high options yields.

These 2 stocks couldn’t be more dissimilar. One is a U.S. homebuilder, and the other is a U.S.-based, multinational tech giant:

MDC Holdings (MDC): MDC’s homebuilding business activities include the purchase of finished lots or development of lots for the construction and sale of single-family detached homes to first-time and first-time move-up homebuyers under the Richmond American Homes name. The company’s financial services business activities comprise the origination of mortgage loans primarily for homebuyers; provision of third-party insurance products to homebuyers; and title agency services to homebuyers in Colorado, Florida, Maryland, Nevada, and Virginia. It also provides insurance coverage on homes sold and for work performed in completed subdivisions; and re-insures the claims. M.D.C. Holdings, Inc. was founded in 1972 and is based in Denver, Colorado.

Cisco Systems (CSCO): Cisco designs, manufactures, and sells Internet protocol (IP) based networking and other products related to the communications and information technology industries worldwide. It offers switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, access points, and servers, as well as function as aggregators on local-area networks and wide-area networks; and routers that interconnects public and private IP networks for mobile, data, voice, and video applications.

Dividends: MDC, which pays a $.25 quarterly dividend, paid out its first 3 2013 dividends in December 2012, to help its shareholders avoid higher dividend tax rates in 2013. Not to worry, however, since you can recapture this amount and more, via selling covered calls. (See below)

CSCO made a hefty raise to its quarterly dividend in late 2012, upping it by over 21%, to $.17, from $.14. CSCO also goes ex-dividend on 7/1/13.

Options: MDC currently has an out-of-the-money September $37.00 put which pays $2.65, which equals 7.25%, or 28.46% annualized for this approx. 3-month trade. If MDC moves to $37.00 or higher, your MDC shares will get assigned, resulting in an additional $.46/share gain, for a total potential annualized assigned yield of over 33%.

(You can see more details on this and over 35 other call option trades in our free Covered Calls Table.)

CSCO has a shorter call expiration, a July $25.00 call option, which pays $0.46, offering you a 27.57% annualized yield. This call is also above CSCO’s share price, so if CSCO rises to $25.00 or above, you’ll receive an additional $.18/share.

MDC-CSCO-CALLS

There are also attractive put options selling opportunities for MDC, which you can learn more about, in our free Cash Secured Puts Table.

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short MDC put options, and long CSCO shares at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

How To Sell Cash Secured Puts

by Robert Hauver
There’s a low-profile, conservative trading technique that we often utilize to “get paid to wait”, for stocks that we want to take a position in.
Have you ever wanted to buy a stock, but its current price seems too high, or the market may have gotten ahead of itself? Instead of just buying this stock, consider selling put options for it.
As it turns out, the put option premiums that you can receive can often be higher than a stock’s next few dividends, even on high dividend stocks.
Here are some important principles and definitions to remember when selling options:
1. One option contract = 100 shares of the underlying stock.
2. The further out in time that you sell an option, the more money, (higher premium), you’ll get paid. Why? Because options have time value, i.e. “time is money”
3. Put option sellers don’t receive dividends. We list dividends in out our Cash Secured Puts Table so you can compare them to the put premiums.
4. Strike Price: The price you’re agreeing to buy the stock for, up until the expiration date, in return for being paid a Put Premium now.
5. Bid: The price that Put or Call buyers are willing to pay.
6. Ask: The price that Put or Call sellers are willing to sell at.
7. Many brokerage sites also list the Bid and Ask quantities, which is helpful – if there are many more bidders than sellers, you may have a chance of selling your put or call options at a higher price/premium than the current bid.
8. Volume/Open Interest: Volume is amount of contracts which have changed hands today. Open Interest is the amount of contracts which haven’t yet expired for each call or put option. Thinly traded options have lower Open Interest.
9. Cash Reserve: This equals the amount of $ that your broker will hold in your account, to ensure that you have enough funds to buy the underlying shares. This amount varies from approx. 25% up to 100%, depending on the type of account- IRA’s will need a 100% cash reserve, whereas taxable accounts approved for Option Level 3 may have only 25-35% held as cash reserve per put selling trade.

TRADING EXAMPLE: To illustrate how to sell cash secured puts, let’s look at MDC, which has high options yields, and was trading at $38.91 at the time of this writing.
1. Go to the option chain for MDC, and select/find “Puts”. (Many brokers’ sites let you select puts OR calls, which makes the data less confusing.)
For each option you’ll see the Strike Price, the Last or most recent price, the Bid prices and quantities, the Ask prices and quantities, today’s Volume, and the current Open Interest (OI).
2. Look up the values for the closest months, (there’s usually a pulldown menu), to see if there are any good yields on Put strike prices below MDC’s current price. Even though there are June and July expirations, we chose the September expiration, further out in time, since it gives you a bigger put premium, (payout), which, in turn, lowers your breakeven.
MDC-PUT-5-28-2013

3. Compare the Bids for the Strike Prices that are below the stock’s price. If you want to be more conservative, choose a lower strike price, for a lower breakeven. If you want to be more aggressive, choose a high strike price, which will pay you more, but give you a higher breakeven.

4. Compare the breakevens to the stock’s 52-week low and high, to give you an idea of its range. You can find this data on the far right side of our Cash Secured Puts Table.
MDC-PutTable
5. We chose the September $38.00 put in our example. It pays $2.70, which gives you a $35.30 breakeven. Since the Bid Quantity (BidQ) is 204, and Ask Quantity (AskQ) is only 97, there’s a good chance that you may be able to sell the $28.00 put for more than $2.70.

6. Compare the upcoming dividends between now and the expiration date: Is the put bid price higher than these dividends? In some cases, it’s much higher. In our example, the Put Bid Premium is nearly 10 times MDC’s next dividend payout.

7. Look at the Put Options Yield: Our table lists all put yields as annualized because there are many different expiration dates. In this example, the Sept. $38.00 put option pays $2.70, which is a 7.1% nominal yield, for a 116-day term, which equals 22.95% annualized.

8. Cash Reserve: For each contract that you sell, your broker will reserve/hold in your account the $ needed to buy 100 shares of the underlying stock. In our example, we sold one $38.00 put, which equals $3,800.00 Cash Reserve (100 x $38.00 MDC share price).

9. Placing the Trade: Click the “Trade” link for the put option you want to sell. This should take you to a Trading module.
>1. Choose “Sell to Open” in the Action pulldown menu.
>2. Choose “Limit” in the Order Type menu.
>3. Enter your desired Selling Price in the Limit Price field.
>4. Select “Day” in the TIF pulldown menu
MDC-STO
When you’ve made all of these entries, click the “Verify Order” button. This will bring up a summary of your order which will list the Expiration Date, the Put Strike Price, and your selling price.

Yikes! What have I gotten myself into?! In our example, we sold one September 2013 $38.00 put for MDC, which obligates us to buy 100 shares of MDC at $38.00, up until this put option’s Sept. 21, 2013 expiration date. BUT, our real cost is only $35.30, because we got paid $2.70/share, ($270.00/contract sold), for selling the put option.

After selling 1 put, you’ll receive $270.00 into your account (upon settlement in 3 days or less) for the contract you sold: (1 put corresponds to 100 shares of stock, 100 x $2.70 put premium = $270.00).

You’d have 1 of 2 outcomes at or near the expiration in September (usually options aren’t exercised or assigned until right around their expiration date):

1. Assignment: If MDC declines below $38.00, you’d be assigned (sold) 100 shares of MDC for every put contract you sold.
2. Non-Assignment: If MDC doesn’t decline to approximately $38.00 or less, your cash reserve money gets released, and you’ve made $270.00 for every contract you sold, less commissions.

In scenario 1, you’d end up owning MDC at a cost basis of $35.30, which is 10.23% lower than its current $38.91 price. There are two ways to view this outcome: Some traders would say that if you’d just waited and done nothing, you would have been able to buy it for $35.30 or even less, anyway, if the market went down.
However, you wouldn’t have had the profit opportunity that selling the put gave you, had you just waited for a market downturn. In addition, you received the put cash immediately, which you can put to use now, AND you’ve determined your potential buy price at $35.30.

Timing: Since selling puts is a conservative bullish strategy, it’s best to sell them after prices have fallen, since put prices move inversely to the market. Look for a “down” day or week when the stock is falling in price – this downward action will inflate the put premiums you can sell for, and lower your breakeven.

Need more info? You can also find more definitions in our Options Glossary page.

Author – Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short MDC put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

An Undervalued High Dividend Stock With Lucrative Cash Secured Puts

by Robert Hauver
We first wrote an earlier article about Northern Tier Energy LP, (NTI), back in early April, when the big question was whether or not this MLP would continue to pay its huge quarterly dividend. This older article also details NTI’s business model, which we like.
In February, NTI paid out a $1.27 dividend, which equated to an 18.55% forward dividend yield, making it one of the highest yielding dividend paying stocks in the market, and putting at the top of the Energy table in our High Dividend Stocks By Sector Tables.
Well, we’re happy to report that, thanks to a big blowout quarter, in which NTI reported an adjusted net income of $108.2 million, that was 20 times its Q1 2012 adjusted net income, NTI is keeping the faith, with another huge distribution, which goes ex-dividend on May 21,2013:
NTI-DIV-MAY
“The Board of Directors of Northern Tier Energy GP LLC, the general partner of Northern Tier Energy LP, has approved a first quarter distribution of $1.23 per unit that will be paid in cash on May 30, 2013 to common unit holders of record as of the close of business on May 23, 2013.” Cash available for distribution totaled $113.2 million for the first quarter 2013.” (Source: NTI website)

This continuing huge dividend payout raises the same question it did in the 1st quarter of 2013: Will NTI keep making these big quarterly distributions, or will it trim its payouts in the next few quarters?
Fortunately, NTI also has high options yields, which give you some alternatives. We currently have a very attractive September $25.00 put listed for NTI in our Cash Secured Puts Table. This put will pay you $2.60 now, and expires in roughly 4 months, which gives you a 30%-plus annualized yield.
To put this into perspective, even if NTI matches its current $1.23/unit May payout in the next quarterly payout, in August, you’d receive $2.46 in distributions, (possibly), vs. $2.60, for sure, right now, by selling the September $25.00 put. The other benefit of this trade is that it gives you a $22.40 breakeven, which is 16% below NTI’s current price/share.
NTI-PUT-MAY
The traditional, simpler approach is to buy NTI outright, and hold onto the shares long-term, using the dividend stream for income, and to ride out the potential ups and downs of NTI’s future share price and distributions.
We’ve adopted a combo of 2 strategies for NTI, since we believe in its business model: 1. Buy and hold for income and potential price appreciation 2. Sell cash secured puts, in order to gain additional income, and lower our ultimate breakeven cost.

NTI also has Covered Calls, which we list in our Covered Calls Table, where you can also see details on over 30 other covered calls trades.
However, the problem with adopting a short-term Covered Call trade for NTI is the uncertainty surrounding its next quarterly distribution – will it be $1.23 again, or will they cut the next distribution?
The biggest short term obstacle in NTI’s path is that they’ll be doing a scheduled shutdown of their refinery in the 2nd quarter for about 25 days. But there’s a silver lining- they’re doing the shutdown in order to expand their refining capacity. Yes, the 2nd quarter will show lower earnings, BUT, long term, the shutdown is a positive for NTI and its shareholders, due to the expanded capacity.
Institutional investors also believe in NTI’s future growth, as do analysts, who are projecting big EPS growth for 2013 and 2014, making NTI look undervalued on a PEG basis:
NTI-PEG-MAY
NTI-PERF-MAY
Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was long NTI shares and short NTI put options at the time of this writing.

How To Grab A Fast Double-Digit Yield From This Dow Dividend Stock

by Robert Hauver
Dow dividend stock IBM, (IBM), is going ex-dividend next week, on 5/8/13:
IBM-DIV
IBM dipped below $200.00 again today, 5/1/13, which sets up a high yield, short-term covered call trade:
IBM-CALL

There are 3 potential income scenarios to this 2-week trade, all of which pay you at least a $2.08/share call option premium:
1. Static – IBM’s share price isn’t above $200.00 at or near expiration, and your IBM shares don’t get assigned/sold. You receive the $2.08 call premium and the $.95 dividend.
2. Assigned before the ex-dividend date- IBM’s share price is above $200.00 before 5/8/13, and your IBM shares get assigned/sold. You receive the $2.08 call option premium, and the price gain of $.37, but not the $.95/share dividend.
3. Assigned after the ex-dividend date- IBM is above $200.00 after 5/8/13, and your IBM shares get assigned/sold on or near the 5/17/13 expiration date. You’d receive the $2.08 call option premium, the $.95/share dividend, and the price gain of $.37:
IBM-CALLINC
You can see more details for this and over 35 other high yield options trades in our free Covered Calls Table.

Cash Secured Puts: We also list a short term put-selling trade for IBM which offers a 13.5% annualized yield, in our free Cash Secured Puts Table.

Earnings: IBM got beaten up after its most recent quarterly earnings report disappointed – revenue fell 5%, and diluted normalized EPS fell 7.2%. However, the 15% earnings estimates for 2013 are still strong enough to give it an undervalued 2013 PEG ratio:
IBM-PEG
Financials: Although it has more debt, IBM’s Mgt. Efficiency ratios are very superior to its peer industry’s averages. This cash cow also has an Interest Coverage ratio of over 35., and also has a 5-year Dividend Growth Rate of over 17%.
IBM-ROE
Other Valuations: Like many Dow dividend stocks, IBM commands a premium Price/Book value vs.its peers:
IBM-MKTCAP
Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was short IBM put options at the time of this writing.

These 2 High Dividend Stocks Go Ex-Dividend Next Week

by Robert Hauver

There are 2 dividend stocks from our High Dividend Stocks By Sector Tables, which go ex-dividend on 5/1/13: Calumet Specialty Products Partners, LP, (CLMT), and PAA Natural Gas Storage, (PAA).

CLMT is a refiner and processor of specialty hydrocarbon products, and operates six plants including operations in Northwest Louisiana, Pennsylvania, Texas and Illinois.

PAA’s business consists of the acquisition, development, operation and commercial management of natural gas storage facilities. Although PAA is listed as a Gas Utility stock on financial websites, it’s actually more of an Energy-related stock.

PAA owns and operates 3 natural gas storage facilities located in Louisiana, Mississippi and Michigan. PAA’s customers include electric utilities, local distribution companies, pipelines, natural gas producers, LNG importers, aggregators, marketers, and industrial and commercial end use customers.
CLMT-PNG-MKTCAP
Valuations: Both of these stocks are closer to the low end of their 5-year P/E range – (PNG went public in 2010, so there’s less history for it than for CLMT.)
CLMT-PNG-PE
Dividends: CLMT has a very impressive 51% dividend growth rate over the past 5 years, having raised its quarterly distributions from $.45 in 2008-2009, up to the current new $.68 payout. In fact, CLMT’s frequency of rate hikes has also increased – they raised their distributions 3 times in 2011, and 4 times in 2012, and just raised it again in the 1st quarter of 2013, to $.68 from $.65. After its 2010 IPO, PNG raised its distribution from $.21 to $.34, and then from $.35 to $.36 in 2011, where it remains currently:
CLMT-PNG-DIV
Performance: Both stocks have had a strong run over the past year, especially CLMT.
CLMT-PNG-PERF
Options: Although both stocks have options available, at present CLMT’s are much more compelling, particularly its cash secured puts. This strategy would make sense in light of the 93% price gains CLMT has had. This put trade offers you a 15%-plus annualized yield, and a breakeven that’s 11.55% below CLMT’s share price.
CLMT-PUT
You can see more details on this and over 35 other high options yields trades in our free Cash Secured Puts Table.

If you’re also interested in selling Covered Calls, we maintain a free Covered Calls Table, which also has over 35 high yield trades.

Financials: Except for its heavier debt load, CLMT’s ratios look stronger vs. its industry than PNG’s do. CLMT has an Interest Coverage ratio of 1.64. PNG has a much higher Operating Margin than its peers, and most of its ratios are in line with its industry’s averages:
CLMT-PNG-ROE
Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author had no positions in CLMT or PNG at the time of this writing.

Can This High Dividend Stock Maintain Its 18% Dividend Yield?

by Robert Hauver

Looking for high dividend stocks? Our search for interesting dividend stocks has uncovered a refining/retailing/pipeline stock with one of the highest dividend yields in the market: Northern Tier Energy, (NTI), is a combination refining/retailing company, based in St. Paul, Minnesota, near the booming Bakken shale play in the Midwest.

NTI’s ability to source Bakken light sweet crude and Western Canadian heavy crude, gives it a big advantage as a refiner, since both of these sources are cheaper than West Texas Intermediate crude. NTI owns one of only two refineries in Minnesota and one of four refineries in the Upper Great Plains area within the PADD II region.

In addition to refining, NTI also has a ready sales outlet for its refined products, as it owns 166 convenience stores under the SuperAmerica brand and also supports 68 franchised convenience stores, mainly in Wisconsin and Minnesota. NTI also owns various storage and transportation assets, including a light products terminal, a heavy products terminal, storage tanks, rail loading/unloading facilities and a Mississippi river dock.

The refining business also includes a 17% interest in the Minnesota Pipe Line Company, which owns and operates the Minnesota Pipeline, a 455,000 bpd crude oil pipeline system that transports crude oil (primarily from Western Canada and North Dakota) for approximately 300 miles from the Enbridge pipeline hub at Clearbrook, Minnesota to the refinery. The Minnesota Pipeline has historically transported the majority of the crude oil used and processed in the refinery. (Source: NTI website)

Dividends: Since its IPO in July 2012, NTI has paid 2 distributions: $1.48 on 11/29/12, and $1.27 on 2/28/13. Projecting their most recent $1.27 distribution forward for 3 more quarters gives NTI a very high dividend yield of 18.55%!

NTI-DIV

Here’s the million $ question: Will NTI maintain this level of dividends? The following may offer a clue for the upcoming May distribution:

In the 1st quarter of 2013, the avg. retail gasoline price was $3.55, better than 4th quarter 2012. If you use 37% as a projected ratio of distribution paid to avg. retail gasoline price, this would indicate a potential May payout of $1.31. Of course, this is a very rough estimate, and it could be derailed by other factors – NTI’s refining margins may have shrunk in the 1st quarter, or mgt. may decide to utilize more of its cash for infrastructure expansion investments. NTI stated in a recent investor presentation that it “plans to invest in logistics operations targeting trucking, terminal and pipeline assets.”

NTI-BARRELS

Given this uncertainty, and NTI’s big 88% rise since its IPO, what should you do?
Options: Here’s what we did, (so far). We sold puts below NTI’s share price, to lower our breakeven, in case the stock price falls, if NTI cuts its May distribution. This trade projects the same quarterly distribution of $1.27 in May and August. Coincidentally, the Sept. 2013 $25.00 put pays $2.50, which nearly matches this projected payout. (Note: put sellers don’t receive dividends.) You can find more details on this and over 30 other put trades in our free Cash Secured Puts Table.

NTI-PUT

Covered Calls: Alternatively, you could buy NTI and sell covered calls to hedge your bet. This would pay you less option $ up front, but allow you to participate in future distributions and potential price gains.
This trade, from our Covered Calls Table, offers a $1.60 call premium, plus the potential for $2.61 in price gains, ($30 call strike minus $27.39 share price). You’ll also receive NTI’s next distributions, unless NTI rises above $30 before the ex-dividend dates, and your shares get assigned/sold. NTI should announce its next distribution sometime around May 13th.
NTI-CALL

Earnings: NTI looks very undervalued on a 2013 PEG basis, but analysts are projecting much less growth for 2014. However, given its ability to pay very attractive distributions thus far in its short history, even if NTI just keeps its yield in the “double-digit realm”, its dividend yield should continue to attract investors, and support its share price in the future.
NTI-PEG
Financials: NTI’s ratios look better than its peers so far. It does carry more debt, but it has sufficient Interest Coverage and a strong Current Ratio:
NTI-ROE
Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was short NTI put options at the time of this writing.

3 High Dividend Stocks Going Ex-Dividend Next Week

There are several dividend stocks going ex-dividend next week, (3/25/13 – 3/3/29/13) from the Financials section of our High Dividend Stocks By Sector Tables. The following 3 stocks are mortgage Real Estate Investment Trusts, or “mREITS”, as they are popularly known. They invest in mortgage-related securities, issued by government agencies, such as Fannie Mae and Freddie Mac, and use leverage to achieve high dividend yields.

Dividends: CMO increased its quarterly dividend to $.31, from $.30, while NLY and RSO maintained their dividend payouts this quarter. RSO maintained a $.25 quarterly dividend from late 2009 through 2011, but it dropped its quarterly payout to $.20 in 2012. Prior to the housing crisis, RSO paid as high as $.41. NLY dropped its dividend payout twice in 2012, to $.55, and then to $.50, before seemingly stabilizing at $.45 in Dec. 2012.

CMO-NLY-EXDIV

As REIT’s, they must pay out at least 90% of their income, in exchange for paying no corporate income taxes, hence their high dividend yields. Even with the decrease in dividend payouts, these yields are still quite high:

CMO-NLY-DIVYD

Current Valuations: The smallest stock by Market Cap, RSO’s P/E is closest to the low end of its 5-year P/E range, but CMO is the cheapest on a Price/Book basis:

CMO-NLY-PB

Options: Although all 3 of these stocks have options, we don’t list them in our Covered Calls Table or our Cash Secured Puts Table, due to low options yields. However, there over 30 other high yield trades in each of those free tables, which are maintained daily.

Financials: All 3 firms have similar Returns On Equity. RSO carries the least debt, and lags in Return On Investment and Interest Coverage:

CMO-NLY-ROE

Performance/Ownership: RSO has outperformed CMO and NLY in 2013, and over the past 52 weeks, partly due to its higher support from institutional and inside buyers:

CMO-NLY-PERF

Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author owned CMO and NLY shares at the time of this writing.

 

2 Dividend Stocks With High Yielding Covered Calls

by Robert Hauver

There are 2 dividend stocks in our Covered Calls Table, that currently have interesting high options yields on out of the money strike prices:

Calumet Specialty Products Partners LP, (CLMT), and Cummins, (CMI).

Dividends: Both of these stocks have ex-dividend dates in May, prior to their May options expiration date of May 17, 2013 market close. CLMT, with its nearly 7% dividend yield, is listed in the Energy section of our High Dividend Stocks By Sector Tables.

CLMT-DIV

Both stocks have covered call trades which expire on the May 17, 2013 market close, after their May ex-dividend dates. CMI’s May $120.00 call option outpays its May dividend by over 11 times:

CLMT-CMI-CALLS

Covered Call Profitability/Income Scenarios: Both stocks have covered call trades with strike prices far enough above their share prices, that you can still earn good income, even if the shares get assigned/sold away prior to the option expiration date. For example, the Potential Assigned Price Gain for CLMT is $1.37, ($40.00 strike price minus $38.63 share cost), vs. its $.65 May dividend:
CLMT-CMI-CALLPROFIT
Share Performance: Both stocks have had big price gains over the past year, and have institutional support. CLMT has outperformed the market substantially so far in 2013:
CLMT-CMI-BETA
Financials: Both stocks have financial ratios above their industry averages, excepting CLMT’s debt load, which is higher than the .13 industry average. CLMT has an Interest Coverage ratio of 1.64.
CLMT-ROE
Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was short CMI puts at the time of this writing.

An Energy Dividend Stock WIth High Options Yields

by Robert Hauver

Energy Services stock Halliburton, (HAL), has risen over 18% in 2013, and is up nearly 35% since the November 15th lows. This is in spite of the fact that HAL recently posted 4th quarter 2012 earnings that were 32% lower than 2011 4th quarter earnings.

HAL’s 2012 full year earnings fell in its biggest region, North America, but rose in its other regions:

HAL-REGION

What are investors seeing? Analysts are predicting nearly flat 2013 sales, BUT, they’re forecasting 2014 sales to rise substantially, up 32%, which gives HAL a very low .42 2014 PEG ratio:

HAL-PEG

Dividends: HAL is certainly not a high dividend stock – it has kept its quarterly dividend at just $.09 since 2007, and yields under 1%:

HAL-DIV

High Options Yields: However, you can still earn good income from HAL, via selling options. We’ve listed below a short term trade for HAL, from our free Covered Calls Table. This April $41.00 call option pays over 18 times HAL’s quarterly dividend amount:

HAL-CALL

With HAL being so near its 52-week high, you may want to consider a more defensive way of trading it. Like selling covered call options, selling cash secured puts gives you immediate income, and a lower break-even cost, if you sell them below or close to the stock’s share price.

HAL-BETA

You can find more details on this and over 30 other put trades in our free Cash Secured Puts Table. The put income for this April trade is higher than the call income, and this put also pays much more than HAL’s quarterly dividend. (Note: Put sellers don’t receive dividends – we only list them on our tables for comparison.)

HAL-PUT

Financials: Although it has a lower Operating Margin, HAL’s Mgt. efficiency and Debt ratios are better than its industry’s averages.

HAL-ROE

Disclosure: The author held no Halliburton shares at the time of this writing.

Disclaimer: This article was written for informational purposes only and isn’t intended as investment advice.

A Tech Dividend Stock With Undervalued Growth

by Robert Hauver

Looking for Tech dividend stocks with growth in 2013? Many investors have taken note of the fact that the Tech sector grew its dividends fastest of any sector in 2012. Couple this with the potential for earnings growth in this sector, and it makes for a compelling dividend hunt.

We found a Tech stock which not only pays a regular dividend, but also recently paid a special dividend, and has a low PEG ratio for its upcoming fiscal year.

Founded in 1982, Maryland-based Tessco, (TESS), services organizations responsible for building, using and maintaining wireless broadband systems. It offers many different product lines, including base station infrastructure, installation test/maintenance, network systems, and mobile devices/accessories.

TESS is a micro-cap stock, with a $195 million market cap, and is listed in the Tech section of our High Dividend Stocks By Sector Tables, after the firm’s special dividend doubled its dividend yield.

Earnings: Tessco’s fiscal year typically ends at the end of March, so, even though the chart below shows much better growth in 2014 than 2013, Tessco’s 2014 fiscal year will begin soon, in April 2013:

TESS also had good growth in its most recent quarter, and a low .75 5-year PEG ratio. Using the 15% 5-year growth figure and a risk-adjusted discount rate of 10.89%, gives a $39.27 estimated value for TESS, which closed this week at $24.24:

Dividends: TESS did the right thing by its shareholders, by declaring a special dividend of $.75, when nobody knew what US dividend tax policy would be in 2013. With its low debt load, the company had the cash to do this. TESS has paid dividends since 2009, and has nearly tripled its quarterly payouts since then, going from $.0667, to the current $.18/quarter.

Unfortunately, TESS isn’t listed in our Covered Calls Table, or our Cash Secured Puts Table, as there are no options available for it at present.

Financials: Although TESS works on slimmer margins, this should be improving soon, as it is transitioning from a low margin business with a major Tier 1 carrier, to more profitable business elsewhere. Its management efficiency ratios and debt load look favorable vs. its industry’s averages:

Performance/Technical Data: TESS had quite a run in 2012, and is also up 8.7% for the first 3 trading days of 2013. This stock should be a good one to add to your watch list, and buy on the dips that will most likely happen when our pals in DC start doing the debt ceiling tango in a few weeks.

Disclosure: The author was  long TESS shares at the time of this writing.

Disclaimer: This article was written for informational purposes only and isn’t intended as investment advice.

 

The Strongest Dividend Growth Sector In 2012

by Robert Hauver

Up until the 2008 market crash, the financial sector was one of the dividend kingpins of the S&P 500, contributing over 20% of all dividends for the index. However, in 2009, this sector’s contribution shrank to only 9%, and even dipped below that in 2010. In 2012, the financial sector has contributed 12.54% thus far.

Meanwhile, the tech sector has kept expanding its amount of dividend paying stocks, which now stands at 56% and has the largest contribution of dividends to the S&P 500 in 2012:

Which tech firms represent these new dividend stocks? We’ve listed below the four new payers for 2012, and then the stocks with the highest dividend increases:

Click to enlarge images.

Here’s how these stocks compare for earnings growth, ranked by estimated PEG for their next fiscal year:

As is often the case, Apple (AAPL), by virtue of its low P/E and strong growth, is at the top of the list. However, Visa (V) is also an interesting growth story due to its 2012 earnings being skewed downward by a big one-time litigation settlement.

On an adjusted basis, Visa’s P/E is around 23.66 vs. the 46- 79 range some of the financial websites are reporting. In addition, unlike Nvidea (NVDA), which has underperformed in 2012, Visa has a strong defensive element — it has done well in rallies and in pullbacks:

Options:

With its 44% gain this year, you may want to wait for Visa to dip in price before diving in. At present, it looks overbought on its stochastic chart.

An alternative strategy for capitalizing on the next price dip would be to sell cash secured puts below Visa’s stock price, which will offer you immediate income and a lower breakeven price. Here’s a comparison of two put trades for Visa, which illustrates the difference in actual put option premium money received, their respective annualized yields, and breakevens.

You can find more info on these and over 30 other trades in our Cash Secured Puts Table:

Disclosure: I’m long V, via being short V put options.

Disclaimer: This article was written for informational purposes only and isn’t intended as investment advice.

A Defensive Dividend Stock That’s Beating The Market This Fall

by Robert Hauver

Wondering where to hide out for the rest of the year? What with Mario Draghi reminding the world of Europe’s problems, (as if we’d forgotten), and post-election profit-taking sending the S&P down 2.37% in one day, defensive dividend stocks are looking more and more attractive.  Here’s an old familiar name that’s been bucking the fall pullback, and only fell .41% during Wednesday’s big sell-off.

Dr. Pepper Snapple Group, (DPS), has beaten the market since the September 14 highs, and also has done well during the summer rally. and during the spring pullback.  Year to date, it has kept pace with the S&P, with a whole lot less drama:

Dividends: Since its spinoff in 2008 from Cadbury Schweppes, DPS has more than doubled its annualized dividend payouts, starting with its first quarterly $.15 dividend in December 2009, to its present $.34 level:

Earnings Valuation: DPS isn’t an undervalued high growth story. Indeed, its 2013 PEG and 5-year PEG are high, and its P/E sits above the median level of its 5-year P/E range:

You also can’t make the case for it being undervalued on a Price/Book or Price/Sales basis, vs. its peers:

Financials: However, it does have better Management Efficiency ratios, and a much higher Operating Margin than industry averages. Its debt load is higher, but it also has a higher Interest Coverage figure:

With its low beta, DPS doesn’t currently have enough volatility to offer high options yields, like some of the other dividend stocks we’ve  covered in recent articles, but it looks like it can offer you some stability in these uncertain times.

Profile: Dr Pepper Snapple Group Inc.  is an integrated refreshment beverage business, marketing more than 50 beverage brands throughout North America. In addition to its flagship Dr Pepper and Snapple brands, the company’s portfolio includes 7UP, Mott’s, A&W, Sunkist Soda, Hawaiian Punch, Canada Dry, Schweppes, Squirt, RC Cola, Diet Rite, Peñafiel, Rose’s, Yoo-hoo, Clamato, Mr & Mrs T and other well-known consumer favorites. Based in Plano, Texas, DPSG employs approximately 20,000 people and operates 24 bottling and manufacturing facilities and more than distribution centers across the United States, Canada, Mexico and the Caribbean.

Disclosure:  Author held no DPS shares at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

 

2 Top Defensive Dividend Stocks

by Robert Hauver

October 12, 2012

With many market observers wondering how long the summer/fall rally will last, we went looking for dividend paying stocks that outperformed the market during the spring pullback AND have also participated in this rally.  Not surprisingly, we came up with 2 Utilities stocks, American Electric Power, (AEP), and Next Era Energy, (NEE). Next Era, based in Florida, was formerly known as FPL, (Florida Power & Light).

Both of these stocks are listed in the Utilities section of our High Dividend Stocks By Sector Tables.

Here’s how these 2 electric utilities stocks have performed as of 10/11/12, in both up and down markets. NEE did the best during the pullback, actually rising 4.69%, while AEP only fell -1.18%, while the S&P fell nearly 10%.  AEP has reversed itself during the rally, rising over 14%, while NEE has risen 7.57% to date. As the table below shows, they both have risen double-digits on a Pullback vs. Rally net basis, while the S&P has risen just over 2% during the 2 periods:

Dividends: Both stocks pay quarterly dividends, and have increased them over the past 5 years. AEP’s dividend has grown from $.41 in 2007 to the current $.47 quarterly rate, while NEE has done much better, climbing from $.41 all the way up to $.60, a nearly 33% dividend growth rate:

Earnings Growth: As with most Utilities stocks, these aren’t big growth stories, since much of their earnings is regulated, but both firms are at least showing some growth for the past and future, although NEE’s EPS stumbled -3.14% in 2011:

Financials: Both firms have superior Management Efficiency Ratios and Operating Margins vs. their industry. They both carry a higher debt load than the Industry average, but they also have higher Interest Coverage Ratios:

 

Disclosure:  Author held no AEP or NEE shares at the time of this writing.

 

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

 

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved


Diebold – This Solid Dividend Stock Just Sent A Buy Signal

by Robert Hauver

It’s often been said that “timing is everything”, especially when buying stocks. We went looking for solid dividend paying stocks which might be on the verge of rising. We came up with Diebold, (DBD), which just crossed above the oversold line on its stochastic chart, an event which is seen as a buy signal by technical traders:

Company Profile: 150 years old, and based in Ohio, Diebold is a leading global supplier of ATMs, and holds the leading market position in many countries around the world. Diebold also provides security and facility solutions, software solutions, and cross-disciplinary functions which include both hardware and software capabilities, and provides professional and managed services, transaction processing, and security services. Diebold’s primary customers include financial institutions, as well as government agencies, commercial enterprises and various retail outlets. (Source: Diebold website)

Diebold hit its high for the year, at $42.25, back in April, and has struggled since, falling to the mid-30’s in the Spring pullback, and hasn’t participated much in the summer/fall rally until recently.  However, it’s up over 2.5% over the past trading month.

Earnings Growth: After bottoming out with a  -$.31/share loss in 2010, DBD came roaring back in 2011, and is estimated to grow over 15% in 2012. Analysts’ 2013 earnings estimates range from $2.65 to $3.00 for 2013, which gives DBD a higher 1.27 2013 PEG ratio.

However, DBD just beefed up its operations in Brazil, by acquiring GAS Tecnologia, a leading Brazilian Internet banking, online payment and mobile banking security company. It serves many of the country’s leading financial institutions and protects nearly 70 % of Internet banking transactions in Brazil. Internet banking services only cover about 30% of the transactions within Brazil currently, and are projected to double every 3 years.

Dividends: DBD has an impressive 5-year dividend growth rate of over 19%, and increased its quarterly payout to $.285 in the 1st quarter of 2012, from $.28:

Options: If you want to improve upon DBD’s dividend yield, there are reasonably attractive call options available. Here’s a trade from our Covered Calls Table, that offers an option premium which pays over 3 times DBD’s quarterly dividends between now and February expiration.

The minimum income you’d receive in this trade is $2.81/share, ($1.70 in call premiums, plus $1.11 in assigned price gain, if DBD rises over $35.00, and your shares get assigned before you receive either of the 2 quarterly dividends. The maximum income you’d receive is $3.37, if you receive both dividends, AND your shares are assigned.  However, it’s more likely that, if your shares got assigned, after receiving the first $.28 dividend, you wouldn’t receive the second one, since DBD’s ex-dividend date may fall on February 15th, the same day as this option expires. Hence, you’d earn $3.09, a 9%-plus yield over this 5-month term:

Diebold also has put options available, but the premiums aren’t that compelling at present. (You can find over 30 high yield trades in our Cash Secured Puts Table.)

Financials: Diebold has an impressive ROE, but does carry a bit more debt than industry averages. However it has an 8.3  Interest Coverage ratio.

Disclosure:  Author held no DBD shares at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

A Stealthy Oversold High Dividend Stock With Growth

by Robert Hauver

We live in the Age of Information, where small investors can get an amazing amount of data on publicly traded stocks, just by clicking a mouse or touching a touchpad. But sometimes, it looks like the Age of Misinformation – Espy Mfg., (ESP), is a good case in point. Many of the finance websites that list a stock’s dividend history are overlooking something significant for Espy – a big special dividend that they’ve been paying out in December since 2008.

Consequently, many sites show Espy’s dividend yield as being below 4%, when it’s actually ranged from around 8% to well over 12% since 2008.  The table below simply uses the year ending stock prices to determine dividend yields, but you could check on the yearly price ranges to come up with more data. 2008 also had another special dividend in March, which hasn’t been repeated:

(ESP is listed in the Industrials section of our High Dividend Stocks by Sector Tables.)

Even Yahoo, which has Espy’s dividend history correct, shows a current yield of only 3.60%. Why are the sites listing it incorrectly? Because it’s a “special dividend”, and there’s no guarantee of it happening each year.

So, will they pay it again in 2012? The special dividend is based on financial results for the most recent fiscal year, which ends on June 30th, and capital requirements for the current year. They’ve supported their dividends by paying out 90% of earnings and also using some Retained Earnings. Management prefers to reward shareholders, by utilizing some retained earnings, instead of earning next to nothing on this excess cash.

Judging by Espy’s earnings and current record order backlog, prospects look good for another $1.00 dividend in 2012, particularly as ESP already ramped up its manufacturing capabilities last year, in order to meet increasing demand. ESP’s order backlog grew by over 31% for its fiscal year ending 6/31/12, to $50.8 million.

Earnings Growth: Using the 2 lowest past Order Backlog-to-Sales Conversion rates, and the lowest Net EPS %, we came up with a fiscal 2013 EPS range for Espy of $2.17 to $2.43:

These 2 estimates translate into a 2013 PEG ratio ranging from a very low .55, up to 1.34.

Technical Buy Signal: In addition to most likely being undervalued on a PEG and P/Book basis, ESP just crossed above the oversold line on its Stochastic chart, which is seen as a buy signal by technical analysts:

Options: There are no call options or put options available for ESP.

Financials/Valuations: Excepting ROE, Espy’s ratios outshine the Defense industry averages, and it also looks undervalued on a Price/Book basis.

Company Profile:Espey Mfg. & Electronics Corp, located in Saratoga Springs, NY, is a Power Electronics Design and Original Equipment Manufacturing (OEM) company with a long history of developing and delivering highly reliable products for use in military and severe environment applications.

Espey’s primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, ups systems, antennas and high power radar systems. The applications of these products include AC and DC locomotives, shipboard power, shipboard radar, Airborne power, ground-based radar, and ground mobile power.

Espey is on the eligible list of contractors on the United States Department of Defense and generally is automatically solicited by such agencies for procurement needs falling within the major classes of products produced by the company. (Source: Espy website)

Disclosure:  Author was long ESP shares at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

This Hot High Dividend Stock May Still Be Undervalued

by Robert Hauver

Our quest for undervalued high dividend paying stocks keeps leading us back to the Energy sector, which took a beating in the second quarter, but has come back strong since late June. In a previous article, we wrote about Pioneer Southwest Energy, (PSE), an energy stock which had been left behind in the summer rally.

This article focuses on Calumet Specialty Products Partners, (CLMT), an LP which is a combo oil & gas processor/refiner. With its 8%-plus dividend yield, CLMT is listed in our High Dividend Stocks By Sector Tables.  Unlike PSE, CLMT hasn’t been left behind this summer, and has greatly outperformed the S&P since late June.  It also looks closer to being overbought than oversold on its stochastic chart:

Undervalued Thesis: Thanks to a series of acquisitions, CLMT had great growth in 2011, and thus far in 2012, with 2012 EPS estimated at $3.34 on average, a torrid 151% pace. Its long-term 5-year growth projection of 26.81% gives it a very low 0.36 PEG:

Here’s the rub – analysts are currently estimating a -3.89% downturn in EPS for 2013:

But analysts may be underestimating the 2013 earnings impact of CLMT’s acquisitions, if the last 2 quarters are any harbinger of what’s to come. CLMT earned $0.97 in the first quarter, and increased to $1.14 in the 2nd quarter of 2012, an approximately 87% to 100% increase over the previous year’s quarters.

So, if CLMT matches the lower, $.97 1st quarter figure over the next 2 quarters, it would earn $4.05 in 2012, and probably even more in 2013, since it has made more acquisitions since the 2nd quarter, which will be accretive to earnings:

(Source: Yahoo Finance)

Using a risk-adjusted discounted rate of 8.37% vs. future earnings also shows CLMT to be undervalued, with a whopping value of $132.97.

Dividends: After paying its first 2 quarterly distributions of $.63 in 2007, CLMT’s payout slipped to $.45/quarter in 2008-2009, but has increased steadily ever since – $.46 in 2010, form $.47 up to $.50 in 2011, and from $.53 to $.59 in 2012.

Even though it still looks undervalued on a long term basis, given the big run that CLMT has had…

You may want to wait for a pullback, or, alternatively, sell Covered Calls, to achieve a lower break-even cost.

Here’s a trade for CLMT from our Covered Calls Table, which lists 30 other high yield trades:

This 5-month trade offers a few different income scenarios:

1. Static – Maximum income of $2.48, (dividends and call premium), if CLMT doesn’t rise above the $30.00 call strike price near its ex-dividend dates, or at expiration.

2. Assigned – Minimum income of $2.15, ($.85 price gain + call premium), if CMLT does rise above the $30.00 call strike price near its first ex-dividend date, and your shares are assigned. Maximum income of $3.33 if CMLT gets assigned at expiration, AND you collect both quarterly $.59 dividends.

CLMT also has put options available, but the only high yield is on a $30.00 strike price, which is above the current price/share.

Financials: CLMT has good Mgt. Efficiency ratios, but does carry more debt than industry averages. However, it has 4.1 Interest Coverage Ratio. Its Operating Margins should improve, as it integrates its acquisitions.

Company Profile: Calumet is a master limited partnership and is a leading independent producer of high-quality, specialty hydrocarbon products in North America. Calumet processes crude oil and other feedstocks into customized lubricating oils, solvents, waxes and asphalt used in consumer, industrial, and automotive products. Calumet also produces fuel products including gasoline, diesel and jet fuel. Calumet is based in Indianapolis, Indiana and has nine facilities located in northwest Louisiana, northwest Wisconsin, western Pennsylvania, southeastern Texas and eastern Missouri. (Source: Calumet website)

Disclosure:  Author had no positions in any of the stocks mentioned in this article at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

A High Dividend Stock That’s Ready To Rise

by Robert Hauver

Looking for cheap high dividend paying stocks? MV Oil Trust, (MVO), has shown a recurring pattern of price troughs that rise into peaks as it approaches its quarterly ex-dividend dates, which fall around the 12th of January, April, July, and October. It recently crossed back above the oversold line on its stochastic chart:

Dividends: With its 11%-plus dividend yield, MVO sits atop the Energy section of our High Dividend Stocks By Sector Tables.  By law, trusts are required to pay out at least 90% of their income in distributions, in return for not paying taxes. MVO’s next ex-dividend date should be around October 12th. (Trust dividends are referred to as distributions.)

Dividend History: MVO will need to pay out at least $.76 in October, to keep pace with its 2011 payout level. Judging by its earnings, (see below), this should be achievable.

Earnings: MVO is one of only of a handful of energy trusts which had strong earnings growth in 2011, (up over 25%), and in the most recent quarter. As noted below, MVO earns royalties from assets which are 98% oil, vs. only 2% natural gas, hence its advantage over natural gas trusts, many of which had been hurt by plummeting prices.

Profile: MV Oil Trust was formed in August 2006, by MV Partners, LLC. MV Partners conveys a term net profits interest to the trust that represents the right to receive 80% of the net proceeds from all of MV Partners’ interests in oil and natural gas properties, which are located in the Mid-Continent region in the States of Kansas and Colorado.  As of June 30, 2006, the underlying properties produced predominantly oil from approximately 985 wells, and the projected reserve life of the underlying properties was in excess of 50 years.

Production from the underlying properties for the year ended December 31, 2005, was approximately 98% oil and approximately 2% natural gas and natural gas liquids. The underlying properties are all located in mature fields that are characterized by long production histories and numerous additional development opportunities to help reduce the natural decline in production from the underlying properties.

The net profits interest will terminate on the later to occur of (1) June 30, 2026, or (2) the time when 14.4 MMBoe have been produced from the underlying properties and sold (which amount is the equivalent of 11.5 MMBoe in respect of the trust’s right to receive 80% of the net proceeds from the underlying properties pursuant to the net profits interest).

Options: There are no put options or call options available for MVO.

Disclosure:  Author had no positions in any of the stocks mentioned in this article at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Cisco – A Tech High Dividend Stock That’s Still Undervalued

by Robert Hauver

After getting bashed in the 2nd quarter, Cisco Systems, (CSCO), stock has done well this summer, gaining over 17% since the June lows. CSCO is also one of the top 4 DOW 30 performers over the past trading month, gaining 6.90%, and trailing only HD, CAT, and IBM, which leads the DOW pack with an 8.49% gain. Even with its big summer gains, CSCO still trails the market year to date:

Thanks to a stronger fiscal 4th quarter earnings report, in which adjusted EPS rose 18% vs. fiscal Q4 2011, Cisco’s full year 2012 EPS growth also looked good. In fact, one could argue that CSCO is still undervalued on a 2012 PEG basis. Looking forward, the consensus for 2013 calls for 10.81% EPS growth, which puts CSCO a bit over the 1.00 PEG threshold for being undervalued.

However, using the consensus future earnings growth rate of 8.09%, with a risk-adjusted 10.41% discount rate, shows CSCO’s estimated value to be approximately $23.25, indicating that CSCO is currently undervalued by well over 20%.

Dividends: After having joined the universe of dividend stocks in 2011, CSCO is now approaching the arena of Tech high dividend stocks. CSCO just ratcheted up its quarterly dividends big time, by announcing a huge 75% increase, going to $.14, from $.08. This is the second increase in 2012 – CSCO increased its dividend in the 1st quarter to $.08, from its initial $.06 payout. This new higher dividend payout ups CSCO’s dividend yield significantly, to just below 3.00%, which is in the higher range for most Tech stocks:

Options Outlook: If you’re interested in pumping up CSCO’s dividend yield even further, you can gain additional immediate income via selling covered calls. Since the $19.00 call strike price is only $.13 above CSCO’s mid-day $18.87 price, it appears that you would risk having your CSCO shares assigned/sold before you collect one or both of the $.14 quarterly dividends before the Jan. 2013 expiration.

However, your Assigned compensation would be much more than the dividends anyway: $1.11 in call premium now, plus $.13 in assigned price gain, for a net gain of $1.24, a 6.57% gain. If your shares were assigned near the October ex-dividend date, in under 2 months, this would equal a 39%-plus annualized yield approximately. Conversely, if your shares are never assigned, the minimum yield you’d make would be a 17.57% annualized static yield.

You can see more info on over 30 other call trades in our Covered Calls Table:

Here’s a look at where CSCO is at price-wise over the past 52 weeks. With a very strong relative strength of 72.39, you certainly can’t say that CSCO is oversold:

Cash Secured Puts: Given CSCO’s recent big rise, a cautious way to still profit would be to sell cash secured put options. This January 2013 put gives you a break-even price of $17.52, in addition to offering an annualized yield of over 18%, over 5 times the dividend amount.

You can see more info on over 30 other call trades in our Covered Puts Table:

Financials: As Cisco is such a dominant player in its industry, industry comps are a bit dicey. However, these comps do include other large firms that compete with Cisco in certain areas, such as Juniper, (JNPR), Alcatel-Lucent, (ALU), and Hewlett Packard, (HPQ):

Disclosure:  Author was long CSCO shares and short CSCO puts at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Two Industrial Dividend Stocks With 30% Covered Call Yields

Standard Motor Products, (SMP), and Worthington Industries, (WOR), are both on a roll this summer, having rallied significantly since the June 4th lows:

Dividends: SMP goes ex-dividend next week, and WOR goes ex- in early September:

Covered Calls:  As you may have noticed on the 2 charts above, both SMP and WOR are currently showing as being overbought on their respective stochastic charts.  This overbought condition often offers the best covered call option yields, and also helps to lock in some of your profits. Both of these dividend stocks currently have very high options yields for their covered calls.

Here are are 2 trades from our Covered Calls Table:

Even though SMP and WOR aren’t high dividend stocks, their options pay out over 6 times their dividend amounts in these 2 trades.  The WOR covered call is in the money, with a strike price that’s slightly lower than SMP’s $22.53 price per share.  The SMP price is above SMP’s price per share, and thus offers an potential assigned yield of 7.64%, ($.34/share difference between the $17.50 strike price, and SMP’s $17.16 share price.)  The SMP is a longer term trade, expiring on November, hence its lower annualized yield:

Disclosure:  Author had no positions in any of the stocks mentioned in this article at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Cummins Is Bouncing Back But Is Still Undervalued

by Robert Hauver

If you’re looking for dividend stocks that bounce back and forth in a trading range, Cummins may be one of the best stocks to buy or trade for this attribute.

Cummins, (CMI), had a rough time after lowering its 2012 revenue forecast on July 10th, down to flat, from a previous 10% estimate. CMI shares reached as low as $82.20, but since then, have rallied nearly 18%:

Click here to read more…

Disclosure:  Author was short CMI put options at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

 

 

3 Basic Materials Dividend Stocks Trouncing The Market

By Robert Hauver

Basic Materials had been getting pummeled in 2012, for a number of reasons, chiefly the slowdown in the world economy, particularly China, and a strong dollar. This sector is the worst performing sector so far, down 0.6% in 2012:

However, over the past month, this sector has outperformed all others, thanks to a falling dollar, and renewed stimulus from the Chinese government.  Click here to read more…

Standard Motor Parts Has Very High Options Yields

Standard Motor Parts, (SMP), had been beaten up after its disappointing 2nd quarter earnings release on May 3rd, but the market has gotten much more revved up about this Industrial dividend stock this summer. SMP received an analyst upgrade in early June, which certainly helped its share price:

Maybe this is why – even after its recent price gains, SMP still looks very undervalued on PEG basis.

Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

 

Worthington Industries Is On A Roll

by Robert Hauver

Looking for dividend stocks with market support?

Steel and Metal processor Worthington Industries, (WOR), has been on a roll since the June 4th lows, rising over 42%, vs. the S&P, which has gained approx. 6%. This dividend stock has done better than the Steel & Iron industry, which is up approx. 4% since June 4th, but is still down 9% for the year, vs. WOR’s big 36.72% gain:

Earnings Growth: A big part of the attraction for WOR stems from its EPS growth figures, which show it to still be undervalued on a PEG basis for next year’s earnings:  Click here to read more…
 

Disclosure:  Author had no positions in WOR at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Halliburton – An Undervalued Blue Chip Dividend Stock

By Robert Hauver

Looking for undervalued dividend stocks? Energy stocks have emerged as the Rodney Dangerfields of the market in 2012, being the only sector that’s still down, (-2.92%), after this new summer rally. However, the sector has pulled an impressive reversal, gaining over 8% since the June 4th lows. Halliburton, however, hasn’t joined in the fun yet, losing -1.52% since June 4th, and is now down almost 14% year-to-date, as of 7/6/12:

HAL-PERF

In addition to being in an out of favor sector, Halliburton’s 2012 earnings are flat, but, if you look to 2013, the picture gets brighter – HAL’s EPS is estimated to grow at over 10%.  Couple this with its historically low range P/E of 8.72, and you have undervalued growth.  We also ran a discounted model for future Earnings growth, with a risk-free rate of 13%, and came up with an intrinsic value of $61.00 for Halliburton.

HAL-PEG

Option trading strategies vs. dividends: Although HAL isn’t listed in our High Dividend Stocks By Sector Tables, it does have some high options yields.

The covered call trade listed below expires in October, and offers a call option premium of $1.68, over 18 times the dividend amount. Since the $30.00 strike is $.93 over HAL’s current strike price, there’s an additional potential assigned yield of over 11% annualized.

Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Schlumberger Just Sent A Buy Signal

By Robert Hauver

Buy Signal– Schlumberger dipped below the oversold 20 line on its Stochastic chart, but just crossed back above the line this week, which is seen by chartists as a buy signal:

SLB-CHART

Schlumberger, (SLB), is the world’s largest oilfield services provider, whose $83 billion market cap dwarfs those of its competitors, such as Halliburton and Baker Hughes.  Like most Basic Materials/Energy-related stocks, SLB has been getting hammered this year, due to a number of factors – slowing Chinese and US growth, Eurozone problems, and declining oil prices.  However, the oil price decline is a 2-edged sword, because some of that decline is due to the new shale oil discoveries that are being exploited via fracking in the US, which is Schlumberger’s biggest and most lucrative market:

Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

VF Corp, A Dividend Stock WIth A 20% Option Yield

By Robert Hauver

VF Corp., (VFC), has been one of the best stocks to buy this year for price gains, having outperformed the market thus far in 2012, and is only 9.06% off of its 52-week highs.VFC is among the top 20 Consumer Goods dividend stocks for 2012 performance.

VFC is a $9 billion apparel and footwear powerhouse, with a very diverse, international portfolio of brands and products, including such well known brands as Lee, Nautica, Wrangler, North Face, and Timberland.

VFC-BETA

With its 2.06% dividend yield, VFC isn’t really part of the high dividend stocks universe, but you can vastly improve upon its dividends by selling covered calls or cash secured puts.

Here’s a covered call trade for VFC, that’s listed in our Covered Call Table, along with over 30 other trades with high options yields.  Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

2 Dividend Stocks With 25% Covered Call Yields

By Robert Hauver

Looking for dividend stocks with high options yields? With the market moving more towards the upside, call option prices have started to rise accordingly. Here are 2 of the over 30 dividend paying stocks listed in our Covered Calls Table, which each have a combined option and dividend yield of 25% or more:

MGA-TGH-CALLS

Dividends: TGH, which is listed in the Industrials section of High Dividend Stocks By Sector Tables, increased its quarterly dividends to $.40, from $.37 in 2012. This was the 9th consecutive dividend increase for TGH.  MGA increased its quarterly dividends to $.28, from $.25, in the first quarter of 2012.

Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

BHP Billiton – An Undervalued Basic Materials Dividend Stock

By Robert Hauver

Looking for undervalued dividend paying stocks?  Like many Basic Materials stocks, BHP Billiton PLC, (BBL), has been under under pressure in 2012, due to slowing growth and tightening financial policy in China.  However, the Chinese government has begun loosening its policies, in order to keep growth moving near their targeted 7.5% GDP rate, which should help Basic Materials stocks such as BBL regain some of their luster.

Undervalued Growth: BBL, whose fiscal year ends 6/30/12,  looks undervalued on a PEG basis for 2012 and 2013:

Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Cummins – An Oversold And Undervalued Dividend Stock

By Robert Hauver

The market has fallen out of love with stalwart Industrial dividend stock Cummins, (CMI), sending its shares down over 16% in May.  Lowered guidance from fellow equipment maker Joy Global, (JOY), has also helped to depress CMI’s shares this week. JOY cut its guidance approx. 3.4 to 4.5%, down to a $7.15 to $7.45 range, and trimmed its revenue guidance by approx. 1.8%, based on weaker mining equipment demand from US coal miners.

Here’s the anomaly and the opportunity: JOY’s coal mining equipment business is slowing in the US because of the ongoing natural gas boom, which is causing utility and other power users to switch from more expensive, dirtier coal, to cheaper, cleaner natural gas.  BUT, as the biggest natural gas and hybrid bus engine manufacturer in the US market, Cummins will gain from this shift from coal to natural gas, as more fleet owners switch to these natural gas  and hybrid engines.

How to play it:  Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Disney – An Undervalued Dividend Stock With Growth

By Robert Hauver

Looking for dividend paying stocks with growth at a reasonable price?  The Walt Disney Co., (DIS), which is in the fast-growing Diversified Media industry, has bettered its peers in 2012 for share performance. However, Disney still looks undervalued, on a PEG basis, due to its growth prospects:

DIS-PEG

DIS-BETA

Disney is currently cashing in big-time on the huge hit, “The Avengers”, which has grossed $1.18 billion so far in global ticket sales, making it Disney’s biggest grossing movie of all time, even higher than any of its successful “Pirates Of The Caribbean” films – sorry pirates… One of Disney’s major ongoing strengths is its ESPN cable franchise, which is the highest paid cable network around, netting over 4 times what other cable channels get paid.   Click here to learn more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

High Dividend Stocks Outperforming The Market Pullback

By Robert Hauver

Looking for defensive dividend paying stocks? It makes sense – May is turning out to be one of the worst months in quite some time, with the S&P 500 down over 6%, the DOW down nearly 6%, and the NASDAQ and RUSSELL 2000 Small Caps both down over 7%.

Here are two dividend stocks from our High Dividend Stocks By Sector Tables that have outperformed the market since the start of the spring pullback in April. United-Guardian, (UG), is a NY-based microcap, and Wisconsin Energy, (WEC), is a large cap electric utility:

Performance: Both UG and WEC have beaten the market quite handily in these time periods…

UG-WEC-YTD-PERF

But things get really interesting, when you look at their performance during rallies and pullbacks over the past 11 months.

Click here to learn more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

3 High Dividend Stocks Bucking The Spring Pullback

By Robert Hauver

The S&P 500 has pulled back approx. 4% since its early April highs, which begs the question, are there any dividend paying stocks that have beaten the market since then?  We took 3 dividend stocks from our High Dividend Stocks By Sector tables, and researched how they’ve done in all of the various rallies and pullbacks since last summer.

These 3 stocks have all held up better than the market in pullbacks, and have also participated in rallies.  Not surprisingly, these defensive dividend stocks hail from the Healthcare and Utilities sectors: NextEra Energy, (NEE), Xcel Energy, (XEL), and Eli Lilly Co., (LLY):

LLY-NEE-PERF-LONG

Click here to read more…

Disclosure: Author had no positions in any of the above stocks at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

The Top Dow Dividend Stocks For First Quarter 2012 Earnings

By Robert Hauver

25 of the 30 Dow Jones Industrials have reported 1st quarter 2012 earnings so far. 18 firms have reported positive growth, and 7 have reported negative growth, with the range running from Boeing, (BA), with 54% year-over-year 1st quarter growth, down to beleaguered Bank of America, (BAC), with -82%. These 2 Dow dividend stocks reported the best 1st quarter 2012 earnings growth year-over-year:

Click here to read more…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Two Auto Parts Dividend Stocks With Undervalued Growth

Since the US auto industry had its best sales quarter in 4 years in Jan-March, and overall world sales are also expected to increase in 2012, you’d think that auto parts companies would be fairly valued already. But, that’s not the case, even with standout growth apparent in some firms. We found 2 solid dividend paying stocks within this sub-industry that are undervalued on many metrics: Magna International, (MGA), a Canadian firm, and Standard Motor Products, (SMP), a US firm. Magna sells its parts to Original Equipment Manufacturers, and Standard sells its parts in both the aftermarket segment and also to Original Equipment Manufacturers. (More detailed profiles are at the end of this article.)

Both of these dividend stocks had strong growth in their most recent quarter, and have good growth forecasts for their next fiscal year. However, their P/E’s are way below industry avgs., making them look undervalued on a PEG ratio basis.  MGA’s current 10.72 P/E is approx. in the middle of its historic P/E range of 7.93 – 14.03, while SMP’s 5.44 P/E is actually below its historic range of  7.24 – 27.97.  Both stocks are also cheap on a Price/Book and Price/Sales basis:

MGA-SMP-PEG

Even though it’s up over 35% in 2012, MGA still looks undervalued.  SMP is down over -24% this year:

MGA-SMP-PERF

Dividends: MGA and SMP both increased their quarterly dividends in 2011 and 2012 – MGA went from $.18 in 2009, to $.25 in 2011, and raised it again, to $.275, in 2012.  SMP raised its dividend from $.05 to $.07 in 2011, and again to $.09 in 2012:

MGA-SMP-DIVS

Covered Calls: Want to rev up the dividend yield on these stocks? You can do it via selling covered call options: Both stocks have relatively high options yields which you can use to turn them into short term high dividend stocks. MGA’s call options yields outpay its next 2 quarterly dividends by over 5 to 1. Click here for a blow-by-blow outline of selling covered calls.

MGA-SMP-CALLS

(You can find more details for over 30 other high options yields trades in our Covered Calls Table.)

Cash Secured Puts: This is a strategy to use if you want to earn some option income now, with the potential of having a stock put, (sold), to you in the future.

SMP has higher put options yields in the 2 trades listed below. SMP’s August $15.00 put currently pays just over 10%, on a 4-month term, for a very high annualized yield of over 33%.

You’re basically getting paid to wait, with the possiblity of having SMP put/sold to you at the $15.00 strike price, if SMP goes below $15.00 at or near expiration. However, your break-even cost would be $13.45, due to the $1.55 put premium you received when you made the put sale.  As with the calls, these put options pay a lot more than the dividends do over the next 4-5 months. (Note: Put sellers don’t receive any dividends.)

Unlike selling covered calls, when selling cash secured put options, you don’t buy the underlying stock first.  Instead, your broker will “secure”, i.e. hold, an amount equal to 100 times the strike price of the put option you sell.  In the SMP example below, you’d sell 1 $15.00 put option.

Since each option corresponds to 100 shares of the underlying stock, your broker would hold $1500.00 for every $15.00 put option that you sell.  At expiration time in August, you’ll either end up with 100 shares of SMP being sold to you, or the $15.00 put will expire worthless.

You can see more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

MGA-SMP-PUTS

Financials: Both firms have better Mgt., debt, and margin metrics than industry avgs., but SMP is the winner in all categories, except for debt. SMP has a very impressive Interest Coverage ratio of 17.9:

MGA-SMP-ROE

Profiles:

Magna International: With 286 manufacturing operations and 88 product development, engineering and sales centers in 26 countries on five continents as of Q4 2011, Magna is the most diversified automotive supplier in the world. We design, develop and manufacture automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers (OEMs) of cars and light trucks in our three geographic segments – North America, Europe, and Rest of World (primarily Asia, South America and Africa).

Magna’s capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; metal body & chassis systems; mirror systems; exterior systems; roof systems; electronic systems; powertrain systems as well as complete vehicle engineering and assembly. (Source: MGA website)

Standard Motor Products: SMP is a leading independent manufacturer, distributor and marketer of replacement parts for motor vehicles in the automotive aftermarket industry, with an increasing focus on the original equipment and original equipment service markets.  The company is organized into two major operating segments, each of which focuses on a specific line of replacement parts. The Engine Management Segment manufactures ignition and emission parts, ignition wires, battery cables and fuel system parts. The Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories, and windshield washer system parts. We also sell our products in Europe through our European Segment.

SMP sells primarily to warehouse distributors, large retail chains, original equipment manufacturers and original equipment service part operations in the United States, Canada and Latin America. Our customers consist of many of the leading auto parts retail chains, such as Advance Auto Parts, AutoZone, O’Reilly Automotive/CSK Auto and Pep Boys. (Source: SMP website)

Disclosure: Author had no positions at time of writing this article.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

How To Buy Apple Below The Market And Earn High Options Yields

By Robert Hauver

Apple, (AAPL), has been much more volatile ever since the US Dept. of Justice announced an investigation into possible e-book price fixing, dropping from its high of $644.00 down to a $572.98 close this week. Adding to the volatility is the anticipation for AAPL’s next quarterly earnings report, scheduled for Tuesday, April 25th.

AAPL has reported spectacular earnings growth over the past 4 quarters, and has surprised to the upside in the “Earnings Surprise” game in 3 of the past 4 quarters. The table below shows the Post-Earnings Share Price changes on the day following each earnings report.

AAPL’s “stumble” in mid – Oct. 2011, when it reported a mere 52% EPS growth and missed inflated analyst expectations, happened during last fall’s high volatility period. The share price only fell -5.59% the day after earnings, but fell from $422.24 to a low of $363.57, (a 13.90% drawdown). during the Nov. market pullback, finally recovering on Jan. 6, 2012, and is currently approx. 36% above its Oct. 18, 2011 price, as of 4/20/12:

AAPL-EARN SURPRISE

After AAPL’s stellar Q1 Fiscal Year report, analysts have kept raising earnings estimates for next Tuesday’s report, with growth forecasts that leave AAPL’s mega-cap peers in the dust.  Looking at AAPL’s past quarterly EPS growth numbers, though, one can hardly blame them for getting so excited.

With estimates and expectations so high, one wonders if AAPL can possibly avoid “disappointing” analysts next Tuesday, while still turning in strong growth figures? Moreover, how will the market react?:

AAPL-Q2-2012 CONSENSUS

So, how can you profit from AAPL’s current volatility and 12.6% pullback?  The prudent approach is probably to wait for next Tuesday’s results and market reaction, but what if AAPL blows out its earnings once again, and soars out of reach?

Fortunately, AAPL has rather high options yields, so, a conservative way to profit in this situation, even if AAPL soars, is to sell cash secured puts below AAPL’s share price, which, of course, is a rapidly moving target. Conversely, if the market is disappointed with AAPL’s report, and its price declines, its put option premiums will rise, including those on the many other strike prices below these put options, resulting in even lower break-even points.

You could sell puts at an even lower strike price in that scenario. As usual, you’ll get paid the put premium price within 3 days of making the trade.

There are 2 variables to this approach – Expiration Month and Strike Price. Here are some examples of the current put options payouts for 2 different put option strike prices that expire in August. Lower strike prices offer lower put premium payouts, but also have lower break-even prices.  The key here is to find a strike price far enough below AAPL’s stock price that achieves the balance between your risk tolerance and your target option income:

AAPL-PUTSTRIKES

There are more details on these and over 30 other Cash Secured Puts trades with high options yields in our Cash Secured Puts Table.)

The next table has examples of the current put options payouts for various expiration months, using the same put option strike price of $580.00. Put premiums are higher for longer expiration dates, which gives you a lower break-even, but a lower annualized yield, due to the longer time period. Again, the more conservative approach is to sell at strike prices further below AAPL’s strike price.

AAPL-PUTMONTHS

AAPL is due to join the ranks of dividend paying stocks sometime in the July-Sept. 2012 quarter, but hasn’t announced its ex-dividend date yet. (Note: Put sellers don’t receive dividends, we list dividends here for comparison only.):

Disclosure: Author is short Apple put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

These Dow Dividend Stocks Are Bucking The April Pullback

By Robert Hauver

It’s been a rainy April for the market thus far, with the S&P down almost -3.00% through 4/19/12. Being  optimistic, we went searching for dividend paying stocks that are bucking the new market pullback.  We found 2 contenders, Caterpillar, (CAT), and Home Depot, (HD), that have held their own in this month’s market decline, and have also done well in recent rallies:

CAT-HD-PERF

HD beat CAT in the Nov. 2011 pullback, and has also had stronger share performance year to date and during this month’s decline.

Valuations & Earnings Growth: CAT derives a lot of its profits from overseas, vs. Home Depot’s mostly domestic focus on the US home market. Subsequently, CAT has had stronger earnings growth in its most recent quarter and fiscal year, as the hobbled US consumer slowly picks up spending, and the home market remains weak. Although it’s up over 18% this year, CAT still looks more undervalued on a PEG basis than HD.

CAT-HD-PEG

We’ll find out if CAT’s current EPS projections hold, when it reports earnings, on its upcoming April 25th morning conference call next week. (Judging by how far off analysts have been in their CAT estimates in recent quarters, it should be an interesting report.)

CAT-ANLYSTMISSES

Dividends: Although CAT and HD aren’t high dividend stocks, both firms have a 5-year dividend growth rate that’s above their industry avgs.: CAT’s is 9.62%, and HD’s is 9.03%. CAT’s dividend payout ratio is more conservative than its industry avgs., while HD’s is much higher than its industry’s low avg. of 26.4%:

CAT-HD-DIVS

Covered Calls: Combining covered call options with dividend stocks is a powerful way to create much more immediate income than many stocks’ dividends offer over 1 – 3 quarters.  The increase in income is particularly high in a stock like CAT, which has high options yields that dwarf its dividend yield.  The tradeoff is that you may forgo potential future price gains, in return for being paid a call option premium now.  CAT has a higher beta and more volatility than HD, which gives it higher options yields.

In this trade, CAT’s August $110.00 call options pay well over 12 times its $.46 quarterly dividend.

CAT-HD-CALLS

If CAT is above $110.00 at or near expiration in August, your shares will be sold/assigned for $110.00, no matter how much higher CAT rises.  You’ll receive an additional $2.64/share in price gain, for an additional assigned yield of 7.54% annualized, and the total potential assigned yield is 25.86%. ($110.00 strike price – $107.36 stock cost = $2.64/share.)

How does this compare to just buying CAT outright at $107.36? Since you received a call premium of $5.95, at a strike price of $110.00, your maximum price point potential is $115.95.  If CAT doesn’t go as high as $115.95 during this 4-month term, you’d be ahead by selling this covered call.

(Each option contract corresponds to 100 shares of the underlying stock.)

The 3 income streams in this covered call trade are, (for 1oo shares of stock bought and 1 call option sold):

1. Call premium of $5.95/share, (paid within 3 days of the trade): $595.00

2. Quarterly dividend of $.46/share, (paid in August, ex-dividend date in July): $46.00

3. Potential assigned price gain of $2.64/share, if CAT is above $110.00 at or near expiration: $264.00

(You can see more details for over 30 other high options yields trades in our Covered Calls Table.)

Technical Data: CAT and HD have been two of the best stocks to buy for price gains over the past year:

CAT-HD-TECH

As the table above shows, both of these stocks are quite close to their 52-week highs, which leads us to another, more conservative options strategy – selling puts.

Cash Secured Puts: By selling cash secured puts below a stock’s current price, you’ll achieve a lower break-even price, and also get paid within 3 days of making the put sale. However, you won’t qualify for any dividends, but, as you can see, the put options listed below pay out over 6 to 14 times what these quarterly dividends pay.

For every put option that you sell, your broker will secure enough cash in your account to purchase 100 shares of the underlyng stock, at whatever the put option’s strike price is, hence the name “cash secured puts”. In the CAT put option trade below, the broker would hold $10,500.00, (100 times the $105.00 strike price).

There are more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

CAT-HD-PUTS

Financials: Both firms’ metrics are far above their industry avgs, except for CAT’s higher debt load. However, CAT has an interest coverage ratio of 6.4.

CAT-HD-ROE

Disclosure: Author is short Caterpillar put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

2 Ways To Hedge Your 2012 Apple Gains

By Robert Hauver

Could this be true? Apple fell on a big “up” market day Thursday, and is negative for the week so far, (-.05%).  Is the game changing, or is AAPL just taking a breather, as investors get a little skittish from a government E-book price fixing probe?

As you most likely know, AAPL has been one of the best stocks to buy for price gains year-to-date, and over the past year.  However, it slowed down its torrid pace in March, gaining 10.53%, vs. it 18.83% gain in February, and is up just 3.74% so far in April.

The mere fact that we’re calling a 10%-plus monthly gain a “slowdown” seems absurd, and illustrates just how well AAPL has performed, and how much the market has come to expect it to perform. But maybe it’s time to hedge your 2012 gains, with AAPL up almost 54% year-to-date, and up 100% from its 52-week low:

AAPL-PERF

AAPL-BETA

If you’d had the prescience to buy AAPL on its way up, you may be wondering which is the best way to hedge your gains. There are numerous ways to hedge, but selling covered calls is an options trading strategy that will create some immediate income for you, and also hedge some of your gains.

Below are two approaches to selling covered calls:

1. Longer Expirations: By selling call options further out in time, you’ll earn more call premium $, and achieve a lower break-even price. In the examples below, we’ve used AAPL’s opening price for 2012 as our cost, in order to show how much of 2012’s gains you can hedge by selling covered calls with various expiration dates:

AAPL-CALLS-TIME

As you sell calls at expiration months further out in time, your call premiums increase – the Jan. 2013 $625.00 call pays $76.10, and hedges over 35% of the year-to-date gain, vs. a $52.45 call premium for the nearer August call, which hedges approx. 25% of the gain.

Tradeoff: Your break-even cost of $328.00 is also lower with the higher Jan. 2013 call option premium, vs. $354.30 for the August expiration.  However, your annualized yield is lower, since it’s a 9-month trade, vs. only 4 months for the Aug. 2012 trade.  (As we don’t yet know what AAPL’s ex-dividend date will be for the 3rd and 4th quarter, we’ve speculated that it might fall before the August expiration. However, it would certainly fall before the Oct. 2012 expiration, and you’d receive 2 quarterly dividends with the Jan. 2013 trade.)

(You can see additional details for over 30 other high options yields trades in our Covered Calls Table.)

2. Higher Strike Prices: A more bullish approach would be to sell covered call options at a higher strike price, in order to leave more room for future potential price gains. If you think that AAPL has more room to run, you could sell covered calls at strike prices higher than AAPL’s current strike price. We used AAPL’s 4/12/22 price of $622.50 for this example, which shows the range of call option payouts you’d receive for 3 different Jan. 2013 strike prices.

Tradeoff: All 3 strike prices are above AAPL’s current price, but as you sell at higher call strike prices, you’ll receive less premium. However, the Jan. 2012 $640.00 call strike price leaves you $17.50/share in potential assigned price gains, vs. only $7.50/share for the Jan. $630.00 strike price.  As usual, the more call premium $ you receive, the lower your break-even is:

AAPL-STRIKES

Dividends: Apple announced in March that it will be entering the world of dividend stocks sometime in the July-Sept. 2012 quarter, paying $2.65/share quarterly.  Market commentators have increasingly compared AAPL, with its huge cash hoard, to other Tech dividend paying stocks, clamoring for a dividend payout.  CEO Tim Cook took their advice, and also instituted a 3-year $10 billion stock buyback plan that starts in October, which will mitigate the effect of employee stock option dilution of shares.

AAPL-DIVS

Valuations: AAPL’s PEG ratio might turn out to be much lower than 1.25, since they’ve exceeded earnings estimates handily for the past  3 out of 4 quarters.  Consider this: AAPL earned $27.68/share in its last fiscal year, which ended 9/30/12, and has already earned $13.87 in its first fiscal quarter, which ended 12/31/12. Since it’s already earned 50% of its past fiscal year’s profit in one quarter, it seems a reasonable bet that AAPL can grow its next fiscal year earnings by a lot more than 14.31%.

By the way, AAPL is also one of only 4 large cap stocks with 40%-plus sales growth over the past 5 years. Just imagine – they grew their sales over 41% through the Great Recession – what an accomplishment! So, the biggest market cap stock in the world is also a growth stock:

AAPL-PEG

Financials: AAPL’s Mgt. ratios and operating margin far outshines industry avgs., and it has no debt:

AAPL-ROE

If you haven’t gotten on board the AAPL bandwagon, any upcoming pullbacks may offer you a chance to do so. In our next article, we’ll detail a lucrative way to sneak up on this stellar stock.

Disclosure: Author is short Apple put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Two Oversold And Undervalued Blue Chip Energy Dividend Stocks

By Robert Hauver

The market’s big multi-month rally may have you wondering if there are any oversold and undervalued dividend stocks left.  The Basic Materials sector has lagged the other sectors over the past year, and is also next to last in appreciation year-to-date, but has shown more signs of life this past week.

The Oil & Gas Equipment & Services industry within this sector has two dividend paying stocks that look oversold and mostly undervalued: Halliburton, (HAL), and Schlumberger, (SLB).  Halliburton’s P/E of 10.31 is near the low end of its 5-year P/E range of 6.24 – 23.52, while SLB’s P/E of 19.87 is closer to the upper part of its 5-year range of 9.58 – 24.97.

As the 2 premier stocks within this industry, both of these stocks usually command a premium Price/Book, but they’re both undervalued on a PEG ratio basis. HAL had strong EPS growth in its most recent fiscal year and quarter, and is projected to have strong growth in its next fiscal year. SLB has a much higher P/E, but also had strong sales and EPS growth in its most recent quarter, and is forecast to have over 22% EPS growth in its next fiscal year:

HAL-SLB-PEG

Share Performance: Like many other Basic Materials stocks, both of these stocks are down considerably over the past 12 months. They’re also way down from their 52-week highs, and have low Relative Strengths of below 40, indicating that they’re starting to enter the upper regions of oversold territory:

HAL-SLB-PERF

Dividends: Both firms managed to maintain their dividends during the 2008 crisis, and Schlumberger increased its quarterly dividend in 2012, to $.275/share, from $.25.

HAL-SLB-DIVS

Covered Calls: Although these certainly aren’t high dividend stocks, they both have high options yields that dwarf their dividend yield.  We’ve listed 2 different covered call options trades for HAL, to illustrate how you can tailor option trading strategies to meet your market bias, be it conservative or aggressive. When you sell covered call options at higher strike prices, you receive lower premiums, but you leave more room for potential price gains.

The first HAL call is more defensive: It has a strike price of $33.00, and its call bid premium of $3.35 is over 18 times HAL’s 2 dividend payouts during this 7-month term.  However, since the call strike price and the stock price are equal, the $33.00 call options leave no room for potential assigned yield, (price appreciation).

The second HAL trade is more bullish: It has a $34.00 strike price, which leaves you the potential for a $1.00/share price gain, but its call bid premium is only $2.88, $.47/share less than the $33.00 call option.

(You can find additional details for this and over 30 other high options yields trades in our Covered Calls Table.)

HAL-SLB-CALLS

Cash Secured Puts: Experienced traders also sell cash secured put options as a way to earn a profit now from stocks that they want to accumulate.  By selling a put, you’re obligating yourself to potentially have to buy a stock at a given put strike price by expiration, if the stock goes below that strike price. Like call options, you get paid a put premium within 3 days of making the trade, (often the same day), as opposed to waiting for quarterly dividends and possible price gains.

Generally, most stocks aren’t assigned or “put” to you until sometime near their expiration date. The reason for this is twofold:

1. Put option buyers will mostly end up selling their open puts, instead of exercising them. They may not want to allocate the cash needed to actually buy the shares and then sell/put them to a put seller.

2. Option buyers want to capitalize as much as possible on the potential price appreciation of the options.

The SLB trade listed below is more conservative than the HAL  trade, in that its strike price is below SLB’s $68.69 price/share.  This gives you a break-even that’s fairly close to SLB’s 52-week low of $54.79.  SLB’s November $67.50 put options pay over 7 times what its dividends pay for the next 8 months.

You can find more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

HAL-SLB-PUTS

Financials: Both firms’ financial figures are superior to industry averages, except for operating margins, where the industry averages appear to be skewed higher, mostly by much smaller companies:

HAL-SLB-ROE

As the market starts to realize that these oil & gas service firms are able to quickly reallocate their resources to high demand areas, HAL and SLB may be two of the best stocks to buy for price gains.

Disclosure: Author is short Haliburton put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

A Major Oil High Dividend Stock With Undervalued Growth

By Robert Hauver

Are there any “bargain basement” high dividend stocks with strong financials, undervalued earnings growth, and future dividend growth? Surprisingly, British Petroleum, (BP), an energy stock that many investors dumped, after its Gulf oil spill debacle, looks like one of the best stocks to buy once again for these attributes.

Investors have been shunning Big Oil stocks for the past year, so this sub-industry group as a whole is down a bit over -1%. However, unlike two of its larger peers, Chevron, (CVX), and Exxon, (XOM), BP has actually been getting support from institutional buyers in the past few months. Technically speaking, BP is also in the upper region of oversold territory, with its RSI of 35.14:

BP-CVX-XOM-PERF

A lot of this new support has to do with BP’s improving earnings and low valuations.  BP has logged strong EPS growth in its most recent fiscal year, and recent quarter. Surprisingly, BP’s sales growth over the past 5 years topped both Exxon and Chevron, and was just above industry averages.  Although BP is only projected to grow 6.36% in its next fiscal year, its very low P/E gives it an enticing PEG ratio:

BP-PEG

Dividends: After the 2010 Gulf spill, BP needed to eliminate its $.84 quarterly dividend payout for the balance of 2010, but then reinstated in 2011, at 50% less, ($.42/quarter). In 2012, BP has been able to increase its quarterly dividends, for the first time since the spill, raising them over 14%, to $.48/share. BP has been a cash machine for a long time, and as it works through the Gulf settlement payouts, its cash flow will only get even better.

BP foresees future dividend increases, as it stated earlier in 2012: “With operating cash flow generated by BP in 2011 reaching some $22bn – over 60% higher than in 2010 – CEO Bob Dudley confirmed the company’s expectation that net cash flow in 2014, in a $100 oil price environment, would be around 50% higher than in 2011. Half of the additional cash is expected to be used for re-investment and half for other purposes including increased shareholder distributions. 2012 will be a year of increasing investment and milestones as we build on the foundations laid last year. As we move through 2013 and 2014, we expect financial momentum will build as we complete payments into the Gulf of Mexico Trust Fund, restore high-value production and bring new projects on stream.” (Source: BP website)

BP’s dividend yield is now above those of CVX and Exxon, and is also above industry averages:

BP-CVX-XOM-DIVS

Covered Calls: Many income investors have begun selling covered call options in order to increase their income from dividend paying stocks. This options trading strategy is an easy way to double, or even quadruple your dividends, depending on the stock.

If you already own the stock, you can then sell 1 call option contract for each 100 shares that you own. (One option contract corresponds to 100 shares of the underlying stock.)

If you don’t own the stock, here’s the sequence for selling covered calls on dividend stocks:

1. Buy the stock, in 100 share lots – example, buy 200 or 300, instead of 250 shares.

2. Sell 1 call option contract for each 100 shares that you own, at a strike price above the stock’s current share price. The further above the share price you sell, the less premium you’ll receive. The further out in time you sell, the more premium you’ll receive, which will lower your break-even. You receive this option $ within 3 days of selling, often even the same day.

3. Collect whatever quarterly dividends are due, as they pass their ex-dividend dates.

4. At expiration time, if the stock has risen above the strike price, your shares will be sold at the strike price, and you’ll also pocket the difference between the strike price and your cost per share.  If the stock isn’t above the strike price then, the call option will expire, leaving you with the initial call premium $ that you received, plus your dividends, as your profit.

These BP Oct. 2012 call options pay nearly 3 times the amount of BP’s 2 quarterly dividends during this 7-month period. This $45 Oct. 2012 call option also holds a potential assigned yield of 2.66% annualized, ($.65/share, the difference between the $45 strike price and BP’s $44.35 share price.)  The catch is that your BP shares will be sold/assigned at or near expiration time, if BP rises above the $45 strike price.

(You can find more details for this trade and over 30 other high options yields trades in our Covered Calls Table.)

BP-CALLS

Cash Secured Puts: If you’re still wary of BP’s gulf spill headline exposure, an alternative options trading strategy would be to sell cash secured put options, and literally “get paid now to wait”.

The BP OCT. $44.00 put option, which is below BP’s share price, would pay you $3.65/ share, ($365 per option contract). This gives you a lower break-even price, of $40.35.

High Options Yields: This put option pays out 3.8 times what BP’s dividends pay over the next 7 months. In addition, you’ll receive your options premium $ within 3 days of making the trade, often even the same day, so you’ll have the use of this $ now, instead of waiting for the quarterly dividends.  (Note: Put sellers don’t receive dividends.)

If BP is below $44.00 at or near the Oct. expiration, you’ll be sold/assigned 100 shares of BP, for every put contract that you sold.  However, your net cost will only be $40.35, ($44 strike price, minus the $3.65 put bid premium you received when you sold the put).

(You can find more info for this trade and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

BP-PUTS

Financials: While they aren’t quite as impressive as some of Chevron’s and Exxon’s figures, BP’s financial metrics are all above industry averages, with the exception of its operating margin. Although BP’s Debt/Equity ratio is higher than CVX and XOM, BP has a very high Interest Coverage figure of 31.8:

BP-ROE

Disclosure: Author is long shares of BP and XOM, and is short BP put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

2 Dow Dividend Stocks With Undervalued Earnings Growth

By Robert Hauver

Although the market has had a large rally over the past few months, the Dow 30 still lags the NASDAQ significantly in 2012, (the DOW is only up 6.78% YTD vs. NASDAQ’s 17.59% gain as of 3/22/12),  This led us to look for undervalued Dow dividend stocks with low PEG ratios, and strong earnings. Our search produced these two familiar stocks, Boeing, and Microsoft:

BA-MSFT-PEG

Boeing has gained nearly 7% in 2012, (there’s a Performance table at the end of this article), but it’s still only up less than 3% over the past 12 months.  Meanwhile, BA has grown its earnings substantially, so that it now has a much lower P/E than its industry peers.

With its strong growth forecast for its next fiscal year, BA has the second lowest PEG ratio of all the Dow 30 stocks.  Although BA has a very high Price/Book, this is partially explained by its very high Return On Equity, (ROE), of 127.72%. (See Financials table further on in article.)

After being range-bound within the $20’s for around two years, Microsoft has risen into the low $30’s.  However, it still looks fairly cheap on a PEG basis, coming in at .97. Even though its earnings and sales growth trail its industry averages, MSFT is one of the few dividend paying stocks within its industry, and offers a fairly good dividend yield, and a very good dividend growth rate.

Dividends: MSFT increased its quarterly dividend by 25% in 2011, from $.16 to $.20/share.  Boeing increased its quarterly dividend in Feb. 2012, to $.44/share from $.42/share.  Both stocks have a conservative dividend payout ratio:

BA-MSFT-DIVS

Covered Calls: Income investors wanting to hedge their bets often sell covered call options, creating additional immediate income by receiving call options premiums, and thereby lowering their break-even cost.

As the table below illustrates, in these 2 covered call trades, the call options pay you 3 to 6 times what the dividends pay during the 4-5 month period. What’s the catch?  By selling a call option, you’re obligated to potentially have to sell the shares at the call strike price by expiration time. (Generally, your shares will get assigned/sold if the stock goes above the strike price at or near expiration.)

There are 2 strategies in the trades listed below – the BA call has a higher strike price than BA’s share price, which gives you some room for potential price gains- (BA $75 .00 strike price is $1.08 above BA’s $73.92 share price). Conversely, the MSFT call strike price is right “at the money”, meaning the $32.00 strike price equals MSFT’s $32.00 share price. This leaves no room for potential price gain, but gives you a higher call option premium.

More bullish covered call sellers sell at higher strike prices, earning a lower call premium, whereas less bullish call sellers would sell calls with strike prices that are closer to the share price, and would get paid a higher call premium.

(You can see additional details for this and over 30 other high options yields trades in our Covered Calls Table.)

BA-MSFT-CALLS

Cash Secured Puts: An alternative option trading strategy is to sell cash secured puts, which obligate you to potentially have to buy the stock at the strike price, if the stock goes below the strike at or near expiration.  Generally, call and put options don’t get assigned until sometime near the expiration date, since call and put buyers don’t want to forfeit too much of the options’ time value.

Why would you sell cash secured put options?  If you want to buy a stock at a lower price than its current price, the put premium $ that you receive lowers your break-even cost, so that, even though you may end up being assigned/sold BA at the $72.50 strike price, your net cost is only $68.70, the difference between the $72.50 strike price and the $3.80 put premium you received.  Meanwhile, you have the use of that put premium $.

Investors are often surprised to hear that Warren Buffett has been known to sell put options, via private off-market deals, on companies he’s interested in buying, sometimes pocketing millions in put premiums now on expiration dates that go out a few years – it’s a very good cash flow deal.

These put options pay out 4 to over 7 times what the dividends pay out during this 4-5 month term. (You can see more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

BA-MSFT-PUTS

Financials: BA and MSFT both have mgt. efficiency ratios that far outshine their industry averages.  BA’s debt load is higher than avg., but their interest coverage is very strong, but not as high as MSFT’s very high interest coverage of 77. BA’s ROE of 127.72% is currently the highest of any stock in the Industrials sector.

BA-MSFT-ROE

Performance:  Although MSFT has been one of the best stocks to buy in 2012 for price gains so far, it’s still has a moderate Relative Strength of 55.55. With its RSI of 43.33, BA is closer to the sub-40 oversold area:

BA-MSFT-PERF

Disclosure: Author holds no shares of any stocks mentioned in this article at this time, but may sell cash secured puts during future market pullbacks.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

3 Financial Dividend Stocks With Institutional Buying And Solid Growth

By Robert Hauver

After being the worst sector in 2011, and losing over -17%, Financial stocks are among the best stocks to buy in 2012 for price gains thus far, beating all other sectors. Even with this major turnaround, Financials are still down -2.3% over the past year:

SECR-PERF-3-15-12

Part of the recent momentum for Financials came from the Greek debt agreement being signed, and improving US economic data. Another major plus was the Fed’s mainly successful stress tests for major banks this week, but the big impetus is that this sector had much better  2011 4th earnings, even though its sales growth was flat:

SECTOR-EPS

(Data Source: Standard & Poors)

Which Financial sector dividend paying stocks are the big boys buying? It looks like some of the brokerage firms and one exchange are getting institutional support, particularly this small cap stock, Interactive Brokers, which is just -3% below its 52-week high, but only up 10.79% for the past year:

IBKR-PERF

Dividends: Although these dividend yields aren’t as high as some of the High Dividend Stocks we often write about, they all have above-average dividend yields for their industry. In addition, you can improve upon these dividend payouts dramatically by using options trading strategies, such as selling covered call options, (see further below).  *CME also had a special $3.00/share dividend that went ex-dividend in March, and increased its quarterly payouts by 22%, to $1.40, from $1.15, in 2011.

IBKR-CME-DIVS

Valuations: So, why are Institutional buyers so supportive of IBKR? Many reasons: IBKR has a very low PEG ratio, outstanding yearly and quarterly EPS and Sales growth, and its Price/Book and Price/Sales valuations are way below industry averages.  CME also has a low PEG, low Price/Book , and good EPS growth, but buyers are probably worried about potential future gov’t regulations for exchanges, stemming from the MF Global scandal.  Schwab’s PEG is also low, but like CME, its recent quarterly sales slowed vs. Q4 2010:

IBKR-CME-PEG

Financials: All of these stocks have above-avg. industry Mgt. Efficiency Ratio and Operating Margins, and carry a lot less debt than the industry average. IBKR and Schwab go head to head in the online discount brokerage segment, but IBKR has a much higher operating margin:

IBKR-ROE

Covered Calls: If you’re looking to earn more income now from these dividend stocks, but still participate in some potential price gains, selling covered call options above the stock’s current price is one way to go.  Covered Call sellers get paid an often lucrative call premium now, in return for committing to potentially have to sell the underlying stock at a given strike price by expiration time. (Each option contract corresponds to 100 shares of the underlying stock.)

If you’re more bullish on a stock, you’d sell covered call options further above its current price/share, but you’ll give up some immediate call option $ now for potential future price gains down the road. In all of the trades below, the call option premiums are up to 7 times the dividend payouts. (Annualized potential assigned yield equals the difference between the strike price and the stock’s share price, divided by the share price.)

The Annualized Total Potential Assigned Yields listed below are comprised of 3 income streams. The $ amounts for CME are:

1. Dividends: $2.80/share, ($280.00 per option contract sold). You’d collect 2 quarterly $1.40/share dividends.

2. Call option premiums: $18.80/share, ($18.80 per option contract sold). You’d get paid this $ within 3 days of selling the call options, often even the same day.

3. Potential Assigned Price Gains: $3.75/share, ($375.00 per option contract sold). This usually occurs at or near expiration time.

(You can discover additional details for this and over 30 other high options yields trades in our Covered Calls Table.)

IBKR-CALLS

Cash Secured Puts: SInce these stocks have rallied so much in 2012, you may wish you could turn back the clock and dive in at a lower price.  One way you can do this, is by selling cash secured put options at a strike price below the stock’s current price.  You’ll be paid a put premium that is often much higher than the stock’s dividends over the next 2-3 quarters, in return for committing to buy the stock at the put strike price. For example, in the 2 put trades below, these puts pay over 7 to 9 times what the dividends pay. (We listed the dividends for comparison sake only – put sellers don’t receive dividends.)

In the SCHW trade below, you’d be paid $1.10 for committing to potentially buy SCHW at $15.00 by Sept 22, 2012, if SCHW’s price goes below $15.00 at or near expiration time. But, if you end up buying SCHW at $15.00, your cost will only be $13.90, (the $15.00 strike price, less the $1.10 you were paid for selling the put option.

(You can find more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

CME-SCHW-PUTS

Company Profiles:

Interactive Brokers (IBKR): Over the last 35 years, IBKR has grown internally to become one of the premier securities firms with over $4 billion in equity capital following payment of a special cash dividend of approximately $1 billion pre-tax.

Interactive Brokers conducts its broker/dealer and proprietary trading businesses on over 90 market destinations worldwide. In its broker dealer agency business, IB provides direct access (“on line”) trade execution and clearing services to institutional and professional traders for a wide variety of electronically traded products including stocks, options, futures, forex, bonds, CFDs and funds worldwide. In its proprietary trading business, IB engages in market making for its own account in about 6,500 different electronically traded products. Interactive Brokers Group and its affiliates execute nearly 1,000,000 trades per day.  (Interactive Brokers was named #1 online broker again in 2011 by Barron’s.)

CME Group (CME): An exchange which builds on the heritage of CME, CBOT, NYMEX and COMEX, CME Group serves the risk management needs of customers around the globe. CME provides the widest range of benchmark futures and options products available on any exchange, covering all major asset classes.

Charles Schwab (SCHW): Launched in April, 1971,  as First Commander Corporation, to conduct a conventional broker-dealer securities business and publish the Schwab investment newsletter, Schwab grew to become one of the leading discount brokerage firms, focusing on individual investors.

Disclosure:

Author holds no shares of any stocks mentioned in this article at this time.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

2 Auto Industry Dividend Stocks With Undervalued Growth

By Robert Hauver

With the S&P 500 up over 8% year-to-date, finding undervalued dividend paying stocks has become more of a challenge, but we did find two, hiding in plain sight, in the resurgent US auto industry, of all places.  It’s been a bit over 3 years since we generous taxpayers bailed out the Auto industry, and now it appears that Ford is finally on a growth path, and GM is also projected to grow its earnings in 2012, after a Q4 2011 EPS slowdown.  Both of these firms had impressive year-over-year EPS growth, as did the overall auto industry.

Take a look at these very low P/E’s – 2.44 for Ford, and 5.43 for GM, which, coupled with their strong growth forecasts for 2012, give these 2 stocks some of the lowest PEG ratios currently seen in the market:

F-GM-PEG

Dividends: Ford just rejoined the world of dividend stocks in 2012, reinstating its quarterly dividend, after a 5-year-plus gap. GM says it hasn’t any plans to reinstate its common share dividends, but GM does have this to offer: 4.75% Series B Mandatory Convertible Junior Preferred shares, which pay a $.59375/share quarterly dividend.  These preferred shares are trading at $41.54, a 17% discount to the par $50.00 call price, and offer a 5.72% dividend yield.

GM’s Preferred B shares must convert on 12/1/2013 into a varying amount of GM common shares, based upon these formulas:

A. 1.2626 common shares per preferred unit, if GM’s common stock is equal to or more than $39.60; OR,

B. 1.5152 common shares per preferred unit, if GM’s common shares are at $33.00 or less.

Here’s the rub: at GM’s current $25.14 price/common share, the conversion would equal just $38.09, a $3.45 conversion shortfall to the preferred shares’ current price of $41.54. So, GM’s common stock would have to rise to $27.42 to break even at conversion time in Dec. 2013.

Alternatively, it would take collecting approx. 6 quarterly dividends, through 9/1/12, to overcome the $3.45 shortfall.  A third, and more profitable outcome would be if GM rises past $27.42 and you collect the quarterly dividends in the meantime.

You can find the GM preferred shares listed on Yahoo Finance with the ticker, GM-PB. Financial and brokerage websites seem to love making preferred shares as confusing as possible, by giving them varying symbols.  There’s also not a lot of backup info, such as dividend history and terms, on the web for preferreds.  However, preferred shares can be a lot less volatile in times of market volatility.

F-GM-DIVS

Covered Calls: If those arcane conversion calculations and potential outcomes are giving you a headache, don’t sweat it- there’s an easier way to profit from GM.

You can sell Sept. 2012 Covered Call options on GM’s common shares, and earn nearly as much option $ now, as you’d earn in 12 months of holding the preferred shares.

There’s also the additional potential for earning an additional assigned price gain of $.86/share, if GM rises past the $26.00 strike price, which would most likely result in your GM shares being assigned/sold at expiration time. The caveat with selling covered call options is that you’re earning an option premium now, in return for agreeing to sell at the strike price up until the expiration date.

(You can discover additional details for this and over 30 other high options yields trades in our Covered Calls Table.)

GM-CALL

Cash Secured Puts: Maybe you’re not so bullish on the market, or on Ford or GM, so you don’t want to buy them at their current prices?  Fortunately, both of these stocks have lucrative put options yields, which offer cash secured put sellers the chance to get paid now to wait.

These two put options trades listed below both have put options that are below the current stock prices of Ford and GM, and thereby give you the opportunity to achieve a lower break-even cost that’s over 10% below these stocks’ current prices.

As with selling call options, selling puts offers a quick payment of the option premium, within 3 days of the option sale, so you get the use of the option premium $ right away. Your broker will secure cash in your account that’s equal to the number of puts that you sell, times 100, times the strike price, hence the name cash secured puts. (Each option contract corresponds to 100 shares of the underlying stock.)

(You can find more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

F-GM-PUTS

Share Performance & Technicals: Both Ford and GM are well off their 52-week highs. Both of these stocks have been some of the best stocks to buy in 2012 for price gains, but they’re still down over the past year. They’re currently in the Relative Strength neutral zone, being neither overbought or oversold:

F-GM-PERF

Disclosure:

Author owns shares of Ford, and used to own a Mustang, back in the Stone Age.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

These 2 Dividend Aristocrats Have The Best Earnings Growth

By Robert Hauver

Are you searching for dividend paying stocks you can depend on?  The Dividend Aristocrats is an elite group of dividend stocks, created by Standard & Poors, whose members have increased their dividends for at least the last 25 consecutive years.  In fact, some of them have done so for many more years than that.  This group lost a few members during the economic downturn, so it’s quite a testament to the earnings power and management of those stocks that not only survived the crisis, but also managed to increase their dividend payouts during it.

We looked for stocks within this group who had consistent earnings growth, good mgt. metrics, and valuations that haven’t gone sky high, via the rally of the last few months, and we found these 2 impressive companies from 2 different sectors and industries, Nucor Steel, and VF Corp:

NUE-VFC-SECTOR

(We listed Company profiles at the bottom of this article.)

Earnings & Valuations: These are 2 of the very few Dividend Aristocrats stocks which achieved strong growth not only in their most recent fiscal year, but also impressive quarter-over-quarter earnings and sales growth, AND, have strong growth forecasts for their next fiscal year. NUE looks undervalued vs. its Steel & Iron industry peers, on a PEG, P/E, and Price/Sales basis, but is pricier on a Price/Book basis.

VFC’s earnings industry comps also look superior. Their projected Next Fiscal Year EPS growth is lower than the industry avg., since the industry is bouncing back from very poor growth in the most recent fiscal year and most recent quarter.  Having gained over 26% in the past 6 months, VFC’s share price gains have pushed its valuations higher as well, particularly Price/Sales:

NUE-VFC-PEG

Dividends: With its above-avg. dividend, NUE is listed in the Industrials section of our High Dividend Stocks By Sectors Tables.  Both of these stocks have upcoming March ex-dividend dates:

NUE-VFC-DIVS

Covered Calls: If you want to increase your yields over the short term, selling covered call options can offer you some lucrative additional income. In addition to often paying you fat premiums, selling options is a way to generate quick income from stocks that you own or wish to buy. Both of these 2 covered call trades feature high options yields, and have strike prices that are higher than their respective stocks’ current share prices. The higher strike price gives you the possibility of potential price gain profits, in addition to your dividend and call option income. If you’re more bullish about a stock, you may want to sell covered calls at a higher strike price – the difference between the strike price and the stock’s cost equals your potential price gain, or assigned yield.

These two 3-5 month trades have call options that outpay the dividends by up to 6 times.

(You can find more details for these and over 30 other trades in our Covered Calls Table.)

NUE-VFC-CALLS

Performance & Technical Data: Both NUE and VFC have been among the best stocks to buy for price gains over the past few months, but NUE is still down for the past year:

NUE-VFC-PERF

Cash Secured Puts: Since these stocks are near their 52-week highs, you may want to consider another strategy, selling cash secured puts, in order to achieve a lower break-even.  The VFC  $145 put option is below VFC’s current price, and gives you a break-even of approx. 6% below VFC’s price.  The put options pay out up to over 8 times more than the dividends do over this short term.

If you want to be even more conservative, and get a lower break-even price, you can sell cash secured put options at a strike price even further below the stock price, which won’t pay you as much of a put premium, unless you sell them further out in time. Generally, the further out in time you sell an option, the higher premium/payout you’ll receive.

(You can see more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

NUE-VFC-PUTS

Financials:  Not much to complain about with these financial figures, excepting Nucor’s lower operating margin, which is probably due to them using scrap metal as their feedstock:

NUE-VFC-ROE

Company Profiles:

Nucor:: Established in 1940, Nucor is the largest steel producer in the US, and is the largest recycler of scrap steel in the world. Nucor produces many steel products, such as structural steel, sheet steel, plate steel, cold finished steel, and wire mesh, and also acts as a raw materials broker in the steel industry. (Source: Nucor Corp. website)

VF Corp: At $9 billion in sales, VF is the world’s largest apparel company. VF owns many famous apparel and footwear brands, such as Lee, Nautica, Wrangler, Eagle Creek, and others. VF’s lifestyle businesses – Outdoor & Action Sports, Sportswear and Contemporary Brands – are targeted to be more than 60% of total revenues by 2015. VFC is aiming to add $5 billion in organic revenue growth and $5 in earnings per share over the next five years from 2010 levels. Strong growth in our highly profitable international and direct-to-consumer businesses is expected to fuel an expansion in operating margins to 15%. Over the next five years, VFC’s goal is to grow its international revenues by 15% annually to comprise 40% of total revenues. VFC also expects 15% growth in its direct-to-consumer businesses, which should account for about 22% of revenues by 2015. (Source: VFC website)

Disclosure:  Author has no positions in NUE and VFC as of yet, but has definitely worn Wrangler and Lee jeans sometime in the distant past…

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Analysts Are Clueless About These Dow Dividend Stocks

By Robert Hauver

Earnings season is on a roll, and traders are playing the old “earnings estimates beats/misses” game, which often has tenuous ties to reality, at best, as analysts go from being over-excited to being overly pessimistic.  Here’s just how wrong analysts have been about Caterpillar over the last 4 quarters:

CAT-ANLYSTMISSES

Could it be that CAT is just a special case?  Not really – analysts were even more clueless about Boeing.  Can you just imagine, (I shudder to think), if you were to submit an estimate to your boss that was off by over -80%, and then followed up that brilliant piece of work with another estimate that was off by over -30%?   Do you think it might possibly prompt a reassignment or even a permanent vacation?  Not so on Wall St. – where being consistently and often egregiously wrong is OK.

Why is that?  Because it supports the trading excitement of “Earnings Beats & Misses”.  Just think about it, the market often bases its decisions on the estimates of a group of external people, who don’t have access to the daily, inside info of the stocks they’re supposed to be informing us about.  If this sounds like folly, it often is:

BA-ANLYSTMISS

Instead of just listening to analysts “pie in the sky” or “gloom and doom” predictions, try looking at what companies actually earned each quarter vs. a year ago:

BA-CAT-EPS GROWTH

We can also look at their quarterly Revenue Growth vs. a year ago:

BA-CAT-SALES

CAT has been one of the best stocks to buy in 2012 and in 2011 for price gains, but Boeing shares haven’t risen nearly as much. Here’s one reason why.  BA is forecasting lower 2012 earnings per share, of $4.05 to $4.25, vs. 2011’s $5.33 EPS, whereas CAT is forecasting continued strong growth. Even though BA has a record order backlog, unlike other companies, they can’t rush their highly technical products to market.

BA is forecasting just $4.05 to $4.25, but analysts are estimating $4.46/share 2012 EPS, AND, guess what?  Analysts are currently forecasting EPS of $5.67 for BA in 2013, which is 6.4% over BA’s 2011 earnings. Do you believe them?:

CAT-BA-PEG2012

How can a value investor take advantage of Analysts’ mistakes?  By waiting for the analysts’ next overheated incorrect estimate, which may be so ridiculously high that even a company posting strong gains can’t “beat” it, which is what happened with CAT in 2011, when analysts had somehow not factored in the expenses of CAT’s multi-billion dollar purchase of mining equipment maker Bucyrus.

When the stock gets beaten up, and discounted unnecessarily, make your move, and buy it, OR, do this:

Sell Cash Secured Puts: If you want to give yourself more breathing room, you can sell  cash secured put options below the stock’s current price, which will give you a lower break-even price. 2 other important benefits:  you’ll get paid now to wait, and you’ll often get paid much more than the next few quarters’ dividends.  Fortunately, CAT has rather high options yields which are much higher than its dividend yield.

In these two examples, CAT’s put options pay over 9 to 12+ times the amount of its dividends. The further out in time you sell options, the more premium you’ll get paid, and the lower your break-even price will be.  However, your annualized yield will also be lower, because your broker will be holding a cash reserve of 100 times the Put Strike Price in your account against each Put that you sell, until the put expires or is assigned or you buy it back to close out your position.

(You’ll find more info on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.):

CAT-PUTS-2-23-12

How to hedge your gains with Covered Calls: Conversely, if you now own CAT shares, and you’re leery of a market pullback, selling covered call options will protect some of your profit, by giving you additional option income on your shares. The caveat is that, by selling a call option, you’re obligating yourself to sell your shares at whatever strike price you sell the calls at. Typically, the shares will get assigned near or at expiration, if the stock rises above the strike price.  So, you’re foregoing potential price gains, in return for immediate option income.

However, these 2 covered call trades each have strike prices above CAT’s current stock price, offering you the potential for an additional $3.80/share in price gains, if your shares get assigned. The longer-term August call options pay more than the May calls, and both call options heavily outstrip the corresponding dividend payouts. (One options contract corresponds to 100 shares of stock.)

(You can see more details for these and over 30 other lucrative option trades in our Covered Calls Table.):

CAT-CALLS-2-23-12

Financials: Although they aren’t high dividend stocks, these two DOW dividend stocks both have attractive Mgt. Ratios, and good interest coverage, but if you’re looking for 2012 growth at a reasonable price, CAT is the more undervalued of the two.  In fact, CAT is one of the few DOW 30 stocks to have a low 2012 PEG ratio. However, as CAT has risen almost 29% year-to-date, you may want to wait for a pullback before jumping in.

BA-CAT-ROE

Disclosure:  Author is short CAT put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

3 High Dividend Stocks With Strong Growth And High Options Yields

By Robert Hauver

This week we’re focusing on 3 high dividend paying stocks, from 3 different industries, sectors, and countries – all of which have strong growth over the past year, past quarter, and also have good growth forecasts for their next fiscal year.  This diverse group contains a large cap, mid-cap, and a small cap, all of whom are listed in our High Dividend Stocks By Sector Tables:

BGS-CTEL-PROFILES

(All Company Profiles are listed at the bottom of this article)

Growth & Valuations: All 3 firms had robust earnings growth in their most recent fiscal years, and quarters. Next fiscal year growth is also projected to be good. CTEL and NUE both have low PEG valuations, (P/E to Earnings Growth).

BGS rose 69% over the past 12 months, and is currently trading near the high end of its 5-year P/E range. CTEL is much closer to its 5-year P/E low of 6.21 than its high 5-year high P/E of 39.65.  NUE is also in the low end of its 5-year P/E range, which was very wide: 7.72 to 104.86.  All 3 of these dividend stocks currently have above-average Price/Book ratios for their industries.

BGS-CTEL-PEG

Dividends: NUE is one of the stocks in the Dividend Aristocrats group, and has increased its dividends every year for the past 27 years. CTEL pays semi-annual dividends, and had ex-dividend dates in May and December in 2011, with equal payments of $0.386/share, a 53% increase over 2010’s dividend.  BGS also increased its dividend in 2011, from $.21 to $.23.

BGS-CTEL-DIVS

Covered Calls: All 3 of these stocks have options available , which offer an opportunity to improve upon your dividend yields and improve your cash flow.

The options listed in the 2 tables below have the following expiration months:

BGS: August; CTEL: Sept.;  NUE: July.

Frequently, selling covered call options can offer you much higher, short-term payouts than just collecting dividends. The covered call strategy will give you a second, immediate income stream, since you get paid within 3 trading days when you sell options.  NUE’s call options pay over 5 times the dividend payouts in this 5-month trade listed below.  BGS’s covered call options pay over 3 times more than its dividends pay over the next 6 months.

(You can discover more details for these and over 30 other lucrative option trades in our Covered Calls Table.)

BGS-CTEL-CALLS

Cash Secured Puts: Selling cash secured put options is another options trading strategy that also has high yield, quick cash payouts, such as those listed below.  The put options for NUE outpay the quarterly dividends by over 7 to 1 in this 5-month trade.

The annualized yields below are based upon a 100% Cash Reserve, which is the amount your broker will set aside in your account when you sell put options.  This amount equals 100 shares times the Put Strike Price. We covered more of the specifics of put selling in last week’s article. Unlike call sellers, though, put sellers don’t collect dividends.

(Note: There are more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

BGS-CTEL-PUTS

Financials: Even though Nucor’s mgt. ratios look lower than these other 2 firms’, they are actually much better than its steel industry peers. Nucor’s website also says that its “5-year 371% return to shareholders beats all other S&P 500 firms”.  CTEL’s ratios are much higher than its telecom industry peers, plus it’s debt-free, and BGS has a superior ROE and in-line ROA and ROI to its food industry peers.

BGS-CTEL-ROE

Performance & Technical Data: Although these stocks are way above their 52-week lows,  CTEL and NUE are still down vs. 1 year ago, even though they both greatly improved their earnings.

However, investors have been rewarding CTEL and NUE this year, and they’ve been among the best stocks to buy in 2012 for price gains so far:

BGS-CTEL-PERF

Company Profiles:

BGS: B&G Foods and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-stable foods across the United States, Canada and Puerto Rico. B&G Foods’ products include hot cereals, fruit spreads, canned meats and beans, spices, seasonings, marinades, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-style sauces, taco shells and kits, salsas, pickles and peppers and other specialty food products. B&G Foods competes in the retail grocery, food service, specialty store, private label, club and mass merchandiser channels of distribution. Based in Parsippany, New Jersey, B&G Foods’ products are marketed under many recognized brands, including Ac’cent, B&G, B&M, Brer Rabbit, Cream of Rice, Cream of Wheat, Don Pepino, Emeril’s, Grandma’s Molasses, Joan of Arc, Las Palmas, Maple Grove Farms of Vermont, Ortega, Polaner, Red Devil, Regina, San Del, Sa-són Ac’cent, Sclafani, Trappey’s, Underwood, Vermont Maid and Wright’s. (Source: B&G Website)

CTEL: Established in 1992, City Telecom (H.K.) Limited provides integrated telecommunications services in Hong Kong via its own self-built fibre network. City Telecom’s wholly-owned subsidiary, Hong Kong Broadband Network Limited (HKBN), is the fastest growing broadband service provider in Hong Kong. HKBN offers a diversified portfolio of innovative products that service over 1,240,000 subscriptions for broadband, local telephony and IP-TV services.  CTI participated in the investment for construction of submarine cables, including Japan-US Cable to connect the US and Japan across the Pacific Ocean, as well as Asia Pacific Cable Network 2, connecting us to eight districts in Asia and allows direct connection with the major fixed network operators in China. (Source: City Telecom website)

NUE: Founded in 1940, Nucor is the largest steel producer in the US, and is the largest recycler of scrap steel in the world. Nucor produces many steel products, such as structural steel, sheet steel, plate steel, cold finished steel, and wire mesh, and also acts as a raw materials broker in the steel industry. (Source: Nucor Corp. website)

Disclosure:  Author is long BGS and short BGS call options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Heavy Institutional Buying For This High Dividend Stock

By Robert Hauver

Institutional buyers have increased their purchases of Textainer (TGH), by over 12% over the past quarter, pushing its share price up by over 8% thus far in 2012.  Thanks to institutional support, TGH has also been one of the best stocks to buy for price gains over the past 6 months, having risen nearly 40% from its summer lows:

TGH-PERF

TGH-PROFILE

TGH’s institutional support is in stark contrast to its container-leasing industry peers, especially SeaCube, (BOX), which has seen a huge decrease in institutional buying in the past 3 months. The stocks in this group are mostly small caps, ranging in size, from $330M Seacube (BOX), up to $2.04B mid-cap, GATX Corp. (GMT), which is also in the railway business.

Judging by TGH’s industry-low Institutional Ownership, it may have quite a bit of room to gain further support:

TGH-PEERS-INSTITBUYG

Company Profile: Textainer has operated since 1979 and is the world’s largest lessor of intermodal containers based on fleet size. TGH has a total of 1.7 million containers, representing 2.5 million TEU, in its owned and managed fleet, and leases containers to more than 400 shipping lines and other lessees. TGH leases standard dry freight, dry freight special containers, and refrigerated containers. They are one of the largest purchasers of new containers annually, and believe that they’re also the largest seller of used containers, selling up to 100,000 containers per year to more than 1,000 customers. (Source: TGH website)

One reason for Textainer’s popularity with the institutional trade is its hefty 98.6% fleet utilization rate, which increased from 98% in the 3rd quarter of 2011. TGH also increased its net income/share for the first 9 months of 2011 by 40%, and raised its revenue by over 43%.  Container rates have been at historic highs, and, while the company thinks that they may have peaked, they feel that these rates will still remain at a high level for the immediate future. Container demand has been very strong, especially for refrigerated containers, which is a result of the expanding global food distribution business.

Dividends: TGH has had a 75% dividend growth rate since 2007, and also raised its dividend every quarter in 2011, going from $.29, to $.35. TGH is currently listed in the Industrials section of our High Dividend Stocks By Sectors Tables.

Note: TGH’s next ex-dividend date may be later than Feb. 17th, due to the fact that they normally announce their quarterly dividend info at each quarter’s earnings call, and their next earnings call will be on Feb. 14, 2012:

TGH-DIVS

Covered Calls: Although TGH doesn’t have the high options yields that we’ve written about in many other articles, you could still double your dividends on TGH, via selling covered call options. The call option and put option trades listed in the tables below both expire in August 2012. Selling the Aug. $35 covered call would also leave room for big potential price gains, if your shares are assigned/sold.

This is a breakdown of the income from this 6-month covered call trade:

1. Dividend income: $1.05

2. Call option income: $1.10

Total Static Income: $2.15  This is your income if TGH doesn’t rise past the $35.00 strike price, giving you a Static Yield of 6.82% for approx. 6 months, or 13.17% annualized.

3. Potential Price gains: $3.47  This is the difference between the $35.00 strike price and the $31.53 stock price.

4. Total Potential Income: $5.62   This gives you a nominal yield of 17.82% during an approx. 6-month term, or 34.42% annualized.

(You can see many more details for these and over 30 other trades in our Covered Calls Table.)

TGH-CALLS

Cash Secured Puts: Selling cash secured put options can be a lucrative way to “sneak up on a stock”, in that you get paid now to wait. Although put sellers don’t collect any dividends, put options often pay 2 or more times what a stock’s dividends may pay during a short term.

Example: In the put option trade below, let’s say that you sell one Aug. 2012 $30.00 put for TGH.  You’d get paid $2.05/share, or $205.00 within 3 days of the trade, or often even the same day. (1 option contract corresponds to 100 shares of the underlying stock, be it puts or calls.)

When you sell this put option, your broker will reserve $3000.00 in your account, until expiration, to insure that you have enough funds to buy 100 shares of TGH at $30.00.  By selling the put option, you’re obligating yourself to potentially have to buy 100 shares of TGH at $30.00 at or near expiration. In general, most option contracts aren’t assigned until around expiration time, since most option buyers find it more profitable to just buy and sell the options rather than the underlying stock. However, time works against the option buyer, and works in your favor as an option seller, since it steadily erodes the value of an option, the closer it gets to expiration.

Potential Outcomes:

Assignment: If TGH goes below $30.00 at or near expiration, you’ll likely be assigned/sold 100 shares of TGH at $30.00, BUT, your net cost is only $27.95, the $30 strike price, less the Put premium of $2.05.  Therefore, if TGH is anywhere above $27.95, you still can sell it at a profit, or hold onto it.

Static: If TGH doesn’t fall below $30.00 at or near expiration, you won’t get assigned any TGH shares, and your broker releases your $3,000.00 cash reserve.

(Note: You can find more details on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)

TGH-PUTS

Valuations: The industry avgs. below for Most Recent Fiscal Year Growth are skewed higher by the 2 smaller firms, BOX and CAP, both of whom had wild, triple-digit EPS growth gains.  However, their projected growth for their next fiscal year is much more calm, at 9% to 10%, which may be why the institutional buyers aren’t buying these stocks as much as they had in the past.

TGH-PEG

Financials: TGH has better management and financial metrics than its peer industry avgs. Two other negative factor for BOX is that it has Debt/Equity of over 5, and Interest Coverage of only 1.8, both worse than industry avgs.

TGH-ROE

Disclosure:  Author is short TGH put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

The Top 5 Foreign Dividend Stocks For 2012

By Robert Hauver

Which will be the best stocks to buy for dividends in 2012, foreign or US? Just like the dividend paying stocks in last week’s article,  The Top 5 US dividend stocks for 2012, the top 5 foreign dividend stocks for 2012 are ranked here by which ones will make the largest total cash payouts in 2012. This elite group contains firms from 5 countries, in these industries: oil majors, mobile phones, money center banks, and commodities producers. Two of these stocks are listed in our High Dividend Stocks By Sectors Tables :

CHL-BBL-HBC-PROFILE

Dividend Growth Rate: Excepting financial stock HBC, all of these stocks have an impressive 5-year dividend growth rate. All of them also increased their 2011 dividends per share, except for Shell, which, however, just announced plans to increase its dividend in 2012:

CHL-BBL-DIVGROWTH

Projected 2012 Dividends: For the table below, we took the conservative route, and projected the same dividend payouts/share as in 2011.  However, given these firms’ strong earnings, low debt loads, and past dividend growth rates, it’s very probable that they’ll continue to increase their dividends in 2012. (There are 2 classes of Shell shares, while Billiton actually operates as 2 different companies, with different ticker symbols, and divergent prices, but reports as one economic unit. The cheaper BBL shares have a higher dividend yield than the BHP shares, since the dividends are the same.)

CHL-BBL-DIVS-2012

Covered Calls: Interested in earning more income from these dividend paying stocks?  You might want to try selling covered call options, a strategy which gives you a second income stream that often pays you much more than dividends do, over the short term. The Sept. 2012 call options listed here for BBL and PTR both outpay their dividends by nearly 2 to 3 times during this 8-month term.

What’s the catch? Your shares of BBL and PTR may potentially be sold/assigned at their call strike prices, if the stocks rise above them near expiration in September.  In the BBL trade, you’re basically getting paid $5.90/share now, to make the bet that BBL won’t rise higher than its $70.00 call strike price.

In addition to the call option $, you’ll also collect the 2 semi-annual dividends, which have ex-dividend dates prior to the call option expiration date, provided that the shares don’t get called/sold away from you before the ex-dividend dates. However, if the shares do get assigned, you’ll also earn an additional $.97/share in this example- the difference between BBL’s 2/2/12 $69.03 share price, and the $70.00 call strike price.

(You can see additional details for these and 30 other trades in our Covered Calls Table.)

CHL-BBL-CALLS

Cash Secured Puts: Maybe you fell that PTR is too expensive at $148.90?  If so, you may want to sell cash secured put options below PTR’s current price, in order to achieve a much lower break-even price.

PTR closed at $148.90 on 2/2/12, but selling the Sept. 2012 $145.00 put option listed here will pay you $12.90/share now, and give you a break-even of $132.10, over 11% below PTR’s current $148.90 price.  As with selling covered call options, selling these put options will pay you over twice what the dividends pay during this 8-month term. However, unlike covered call sellers, put sellers never receive dividends.

The cash reserve equals the amount that your broker will hold in your account, so that you have enough funds to pay for the shares if they get sold/assigned to you. The cash reserve is equal to the put strike price times the amount of puts you sell, times 100. (One option contract corresponds to 100 shares of the underlying stock.) The main key to selling cash secured puts is to make sure you’d be comfortable owning the underlying stock at your break-even price, before you sell any puts.

(Note: You can find more info on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)

CHL-BBL-PUTS

Earnings/Valuations: (* CCS EPS figure, which excludes the effects of oil price changes on inventory carrying amounts.)

CHL-BBL-EPS

Financials: Like many other financial firms, HBC’s mgt. efficiency ratios got decimated in the financial crisis. BBL/BHP has the best mgt. ratios and operating margin in the group:

CHL-BBL-ROE

Disclosure: Author is short BBL put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

The Top 5 US Dividend Stocks For 2012

By Robert Hauver

Which dividend paying stocks paid out the most cash in dividends in 2011? Did they raise their dividends enough to stay among the top US dividend stocks in 2012 for cash payouts? 2011’s winners were all Dow dividend stocks, all raised their dividends in 2011, and have the size and cash necessary to make this short list.

This group paid investors approx. $6 billion to $10 billion-plus in 2011, and appear likely to increase those amounts in 2012, given their historic and recent dividend growth rates. (Although though GE lowered its dividends in 2009, it started increasing them again in 2010, and continued to do so in 2011, with a huge 21% hike):

T-XOM-DIVGROWTH

Pending Quarterly Dividends: These stocks pay quarterly dividends, and three of them are listed in our High Dividend Stocks By Sectors Tables. The projected dividends listed in the following table are all based upon the most recent quarterly dividends paid:

T-XOM-GE-DIV2012

Other than GE, investors rewarded these stocks for their dividend payouts in 2011- their share performance beat the S&P, which returned a big goose egg for 2011.  Chevron, Exxon, and J&J also beat the Dow’s 5.53% return in 2011.  So far in 2012, investors are favoring small caps, but that increased “risk on” approach will probably fade, in favor of large caps, when volatility returns to the market:

T-XOM-PERF

Selling Covered Calls: Even though these stocks don’t have the high options yields that we often write about, you can still substantially increase your dividend yields, via selling covered call options. We’ve listed only options for T, XOM, and GE here, as JNJ and CVX currently have much lower options yields.

In the July 2012 XOM covered call trade below, XOM’s call options sell for nearly 4 times the amount of its next 2 dividends.  The trade-off is that your shares will potentially be sold/assigned if they rise above the $87.50 July strike price for XOM. But you’d also receive a capital gain of $.73/share, the difference between the price/share of $86.77 and the $87.50 strike price, if the shares are sold/assigned.

The call options in the table below expire in Oct., July, and Sept. for T, XOM, and GE respectively.

(You can find more details for these and 30 other trades in our Covered Calls Table.)

T-XOM-CALLS

Selling Cash Secured Puts: As T, XOM, and GE are all relatively close to their 52-week highs, some investors may choose to sell cash secured puts below the current stock price, in order to achieve a lower break-even entry price.

Selling cash secured put options is an investing approach which pays you to wait: just like selling call options, you’ll get paid now for selling put options. But, if the stock goes below the put strike price at or near expiration, you’ll have it assigned/sold to you for a cost equal to the strike price.  However, your break-even will be lower than the strike price, due to the put premium you receive when you sell puts.

In general, most options aren’t exercised until sometime near or at their expiration date. As an option seller, this works in your favor, as the time value of the option that you’ve sold declines steadily.

The T Jan. 2013 $30.00 put strike price below pays you $3.25, making a break-even of $26.75, which is below T’s 52-week low.  (The puts in the table below expire in Jan. 2013, July 2012, and June 2012 for T, XOM, and GE respectively.)

(Note: You can see more info on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)

T-XOM-PUTS

Valuations: Although these venerable large caps wouldn’t be considered growth stocks, GE’s PEG ratio is very near to the 1.00 undervalued threshold. XOM has a  negative PEG, due to analysts’ current negative growth forecasts for its next fiscal year. However, as we’ve seen before, oil could rise, or even spike much higher, in reaction to world events, particularly in the Middle East.  XOM has also turned in earnings surprises in 3 out of the last 4 quarters.

Ather issue for XOM is its increased exposure to natural gas via its 2010 purchase of natural gas giant XTO. With supplies coming on, natgas prices are forecasted to drop until US infrastructure can be built up enough to support increased demand.  However, with the current US administration just this week coming out with trucking tax incentives for natgas truck purchases, and other firms building a chain of US natgas fueling stations and liquid natural gas export treminals, demand for natgas may catch up with supply again sooner than later.

T-XOM-PEG

Financials: GE’s debt/equity ratio is much higher than the rest of the group, but it does have an interest coverage of 2.3.  XOM and CVX have metrics that are mostly in line with their Oil Majors peers. JNJ’s numbers are superior to its peers, and, with the exception of a slightly lower ROA, T’s numbers outshine its peers.

T-XOM-ROE

If you’re an income investor, this elite group holds some of the best stocks to buy in 2012 for dependable dividends.

Disclosure: Author is long GE, CVX, XOM, and T shares, and short GE call options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Make Over 20 % By Hedging This Top Dow Dividend Stock

By Robert Hauver

Although it’s nearly flat for the past year, the Industrial sector has been rising strongly over the past few months:

SECTOR-PERF-1-19-12

Promising earnings forecasts are one of the main reasons for this sector’s momentum, as it’s projected to be one of the top sectors for EPS growth over the next 5 years:

SECTOR-PEG-1-19-12

So far, Caterpillar, (CAT), has been one of the best stocks to buy in 2012 for price gains. If you bought CAT in late 2011, you’d have a nice gain already:

CAT-PERF-1-19-12

Although the market has been climbing so far in 2012, many analysts are forecasting a volatile road ahead in the first half of 2012.  So how can you protect your gains in CAT?

Fortunately, CAT has some of the highest options yields of any Dow dividend stocks, which will help you to protect a large % of your gains, via selling covered calls.

Different strategies you can use to hedge your gains and earn high yields:

1. Sell covered call options further out in time, to capture a bigger premium, and hedge more of your gains. This table uses CAT’s 2011 year-end price as a cost basis, and illustrates how, the further out in time you sell these $105.00 call options, the more option premium $ you’ll receive.

In the table below, the May option pays $7.50, which hedges almost 50% of the $15.11 year-to-date gain for CAT, whereas the Jan. 2013 option pays $13.65, which hedges over 90% of the gain. The higher, longer-term call premiums will also lower your break-even price.

The trade-off is that your annualized yields decrease as you sell further out in time. However, all of these trades achieve double-digit annualized “static yields”, and much higher potential assigned yields.  Static yield equals the call bid premium dividend by the cost basis of the underlying stock, and refers to a scenario in which the stock doesn’t rise above the strike price near expiration, so you keep the underlying shares:

CAT-EXPS-2012-01-19

(You can see more details on over 30 high yield Covered Call trades which we’ve discussed in recent articles in our Covered Calls Table.)

2. If you’re more bullish on the market and/or CAT, you could sell covered call options at a higher strike price, leaving yourself more opportunity for future price gains.

The table below uses CAT’s 1/19/12 closing price as a cost basis, and shows the differences in potential price gains at different strike prices, all expiring in August 2012.

Potential assigned yield refers to the yield on the difference between the stock’s price and the strike price.

In this example, the $105.00 strike price is $.71 below CAT’s $105.71, so if the stock rises above $105.00 near expiration time in August, the underlying shares may get sold/assigned away from you at $105.00.  This is the big trade-off of selling covered calls at a strike price “in the money” – you sacrifice potential future price gains for a higher option payment now.

The other two higher strike prices leave you more room for potential price gains/higher potential assigned yields, but pay lower call option premiums:

CAT-STRIKES-2012-01-19

The above call options pay almost 6 to over 10 times the amount that CAT’s dividends pay during this 7-month trade period.

Selling Cash Secured Put Options:

Conversely, if you’re interested in buying CAT, but you’re leery of its current price, you can sell cash secured puts at a strike price below CAT’s current price, and achieve a lower break-even price.

Selling put options obligates you to potentially have to buy the underlying stock at whatever strike price you sell the puts at.  “Cash reserve” refers to the amount your broker will set aside in your account, to insure that you have the money to pay for the stock, if it gets sold/assigned to you at expiration. For example, the $105.00 strike price requires a cash reserve of $10,500.00, which equals $105.00 x 100 shares of CAT.  (Each option contract corresponds to 100 shares of the underlying stock)

In these August 2012 put options trades, each lower strike price gives you a lower break-even, but also has a lower option premium.  So, you have to decide how aggressive to be – should you “nibble at the edges”, and sell put options further out of the money for a lower break-even, such as the $97.50 strike price below, OR, be more aggressive, and sell at a strike price closer to a stock’s current price, such as the $105.00 strike?:

CAT-PUTS-1-19-12

(Note: You can find more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

Financials: CAT’s mgt. efficiency ratios are higher than its peers’.  CAT’s Debt/Equity ratio is higher, but it has an Interest Coverage ratio of 5.9:

CAT-ROE-1-19-12

Valuations: Although CAT’s Price/Book is much higher than its peers, it appears undervalued on a PEG basis, and has enjoyed solid growth during its most recent quarter and fiscal year.  CAT is due to give its earnings report on Jan. 26, 2012.

CAT-PEG-1-19-12

Disclosure: Author is short CAT put options.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Hollywood Dividend Stocks With High Yields And Growth

By Robert Hauver

Whether its theme parks, movies, or TV – we all love to be entertained, and modern society rewards greatly those who entertain us. This week we’ve found 3 dividend stocks which profit handsomely from the endless demand for entertainment.  These may be some of the best stocks to buy in 2012 for undervalued growth and income within the Entertainment Industry:

DIS-TWC-VIAB-DIVS

Valuations: Compiling meaningful Industry Avgs. is complicated for these companies – although they all operate within the Cable TV industry, Disney and Viacom also are active in the film industry.

Viacom and Time Warner Cable both look very undervalued on a Next Fiscal Year PEG basis, (P/E dividend by EPS Growth), while Disney is close to the 1.00 undervalued PEG threshold. TWC also looks undervalued on a cash basis – its Price/Free Cash/Share is only 3.15 vs. the 10.05 industry avg.

DIS-TWC-PEG

High Options Yields: These firms have modest to avg. dividend yields, but by using options, you can achieve much higher yields, as seen below.

Covered Calls: Disney’s next annual ex-dividend date isn’t until December, but you can create a much higher “virtual” dividend by selling covered call options, plus, you won’t have to wait until December to get paid – option sales are credited to your account within 3 days of trading, often the same day.  However, unlike qualified dividends, which receive a 15% tax treatment, options are taxed as short term capital gains.

The TWC and VIAB call options now yield over 4 to 6 times the amount of their dividends over the 5-6 month period for these trades.  (The call and put options listed for Disney and Time Warner expire in July, and those listed for Viacom expire in June.)

You can see additional info on over 30 high yield Covered Calls trades that we’ve discussed in recent articles in our Covered Calls Table.

DIS-TWC-CALLS

Cash Secured Puts: What can you do if you’d like to own a stock, but you feel that the stock’s price is too high? You can sell cash secured puts at or below the stock’s current price, get paid your put premium $ now, and have a lower break-even – essentially, you’ll get paid to wait.

If you want to be more conservative, you could sell put options at strike prices even further below a stock’s current price and get an even lower break-even.  The catch is that the further “out of the money” you sell, the less put premium $ you’ll receive.  The key with selling cash secured puts is to only sell puts on a stock that you’d like to own, so that, even if the stock gets assigned/put to you, you end up owning it at a price you’re comfortable with.

Some options skeptics argue that, if you just wait for a market pullback, you can end up owning the stock cheaper anyway.  This may or may not happen, but meanwhile you wouldn’t receive any income by just waiting.

TWC’s puts have a break-even closest to its 52-week low. Similar to the call options, these put options pay 4 to 7 times the dividend payouts during this term:

DIS-TWC-PUTS

(Note: You can find more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

Financials: TWC’s Debt/Equity ratio of 3.5 is higher than the industry avg. of 2.16, but its 1.44 Current ratio is better than its industry peers’ 1.06. Viacom has the best ratios of this group:

DIS-TWC-ROE

Performance: Although DIS and TWC are just about flat for the past 12 months, they’ve gathered momentum in the past month.  VIAB h,as been the most loved of the group, having made impressive gains during the past year, quarter, and month, and continues to have its fans thus far in 2012:

DIS-TWC-PERF

Disclosure: Author owns no shares at time of publication, but has always been a fan of Jiminy Cricket.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

3 Large Cap Tech Dividend Stocks With Double Dividends

By Robert Hauver

Searching for undervalued dividend paying stocks with strong growth?  The Tech sector offers some of the best stocks to buy in 2012 for growth and dependable income. The cash-rich Tech sector gained just 1.03% in 2011, in spite of sector earnings growing by over 18%.  However, Standard & Poors is projecting the Tech sector to achieve the largest 2012 EPS increase, and Tech’s P/E is also currently below its 4-year average:

SP-SECTOR-EPS

(Data Source: Standard & Poors)

3 Large Cap Tech Dividend Paying Stocks – Although Tech isn’t normally known for high dividend stocks, there are now dependable dividend stocks in this sector, including these iconic firms, all of whom sport low dividend payout ratios. Better yet, their dividend growth rate is on the rise – all 3 companies had big dividend increases in 2011-  MSFT: up 25%; INTC: up 16%; IBM: up 15%.

ibm-INTC-MSFT-DIVS

Covered Calls: Want to double or triple your dividends? Selling covered call options is a strategy that allows you to vastly improve upon the dividend yields of a stock. These 3 trades have call options that pay from 3 to 11 times what the dividends pay during their approx. 3-month terms. (All options mentioned in this article expire in April 2012.)  Another bonus is that you receive your option premium $ within 3 days of selling a put or call option. In fact, many brokers, such as Schwab, credit your account the same day.  The covered call strategy also helps you to hedge gains in a stock that you own, as we’ve detailed in previous articles. This strategy is also used for locking in income and/or lowering risk when buying new stocks.

You can find additional details on over 30 high yield Covered Calls trades we’ve discussed in our recent articles in our Covered Calls Table.

IBM-INTC-CALLS

Cash Secured Puts: Selling cash secured puts below or close to a stock’s current price is an alternative strategy to use, if you want to buy shares below the current market price, and have a lower break-even cost.  Your break-even is the difference between the put premium and the put strike price. In the table below, the break-even for MSFT is $23.65, which equals the $27.00 Put Strike Price, minus the $1.10 Put Bid Premium.  As with the call options, these April put options pay many times over what the quarterly dividends pay.

(Note: You can find more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

IBM-INTC-PUTS

Valuations: MSFT and INTC both currently have P/E’s close to their 5-year low P/E’s.

INTC, however, recently warned that their 4th quarter revenue and earnings will be negatively impacted by the floods in Thailand: “The company now expects fourth-quarter revenue to be $13.7 billion, plus or minus $300 million, lower than the previous expectation of $14.7 billion, plus or minus $500 million. Sales of personal computers are expected to be up sequentially in the fourth quarter. However, the worldwide PC supply chain is reducing inventories and microprocessor purchases as a result of hard disk drive supply shortages. The company expects hard disk drive supply shortages to continue into the first quarter, followed by a rebuilding of microprocessor inventories as supplies of hard disk drives recover during the first half of 2012.” (Source: Intel website)

Will Intel regain these lost sales in the second half of 2012? Even with the supply issues, he current estimate of under 1% 2012 growth for Intel seems very low, especially since Intel has traditionally been very conservative in its earnings projections, and had 4 consecutive quarterly upside earnings surprises in 2011.

IBM’s new CEO, Ginni Romett, has already made a new acquisition, buying cloud software testing firm Green Hat.  IBM also had 4 2011 consecutive earnings surprises, (low single-digits), while Microsoft had 3 much larger ones, (approx. 9% to 19%).

IBM-INTC-PEG

Financials: Although IBM carries the highest debt load, but they earn enough $ to cover their interest payments by 53 times – quite a cash machine, to say the least.

IBM-INTC-ROE

Performance:  IBM and Intel both outperformed the Tech sector in 2011, but MSFT got no respect.  However, MSFT is up the most so far in the first few days of 2012:

IBM-INTC-PERF

Disclosure: Author is long INTC and IBM shares, and short INTC calls at the time of publication.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Profiting Now From A 2014 US Housing Rebound

By Robert Hauver

Do you think the US housing industry will bounce back in 2012 or 2013? The housing recovery theme has attracted more believers in recent months, as US economic data has mostly improved, and homebuilder stocks have risen.

Warren Buffett has been calling for a housing rebound for quite some time, and is predicting the start of a recovery in 2012, citing 1 million housing starts/year as a key target of industry growth. The NAHB reported that the pace through Nov. calls for 685,000 starts in 2011, which is 98,000, (16.7%), higher than 2010. The Northeast jumped 41%, the West rose 36%, the South rose 12%, and the Midwest fell 8%.

Fed Chairman Bernanke has also stated in a Fall 2011 speech that, “Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it”.  A Sept. 2011 Harvard University study forecasts the amount of new US household formations during the decade between 2010 and 2020 will be at least 11.8 million.

Toll Bros., (TOL), a mid- to upscale market builder, has survived the housing crash reasonably well, and was, unexpectedly, one of the best stocks to buy in 2011 for price gains, as it rose over 7%, vs. 0% for the S&P.  TOL continues to capitalize on cheap land prices, via a combination of land purchase options and outright purchases.  They’ve taken substantial impairments on their existing pre-crash land portfolio.

TOL is one of the few US homebuilder stocks who have positive earnings, however, this is still due to the use of accrued tax benefits which they’ve accumulated from prior years’ losses. They have tax benefits worth $104 million-plus that they can still write off, as of 10/31/11.  Toll Bros. also has one of the lowest debt loads in the housing industry, with a Debt/Equity Ratio of .65.

TOL-PEG

TOL’s recent quarter EPS growth decline was due to FY 2011’s fourth quarter only including a tax expense of $0.2 million, vs. a $59.9 million net tax benefit in FY 2010’s fourth quarter. On a pre-tax basis, TOL’s income rose by nearly $25M , as they reported FY 2011 fourth-quarter pre-tax income of $15.3 million, vs. FY 2010’s fourth-quarter pre-tax loss of $9.5 million.

TOL has also moved into lucrative urban markets, such as New York’s Manhattan and Brooklyn boroughs, and DC suburbs, where housing in trendy neighborhoods has traditionally been a tight, lucrative market. Their 2011 10K report states, “In order to serve a growing market of affluent move-up families, empty-nesters and young professionals seeking to live in or close to major cities, we have developed and are developing a number of high-density, high-, mid- and low-rise urban luxury communities and are in the process of converting several for-rent apartment buildings to condominiums”

“These communities, which we are currently developing on our own or through joint ventures, are located in Dublin and San Jose, California; Singer Island, Florida; Chicago, Illinois suburbs; North Bethesda, Maryland; Hoboken, New Jersey; the boroughs of Manhattan and Brooklyn, New York; Philadelphia, Pennsylvania and its suburbs; and Leesburg, Virginia.”
“We believe that the demographics of the move-up, empty-nester, active-adult, age-qualified and second-home upscale markets will provide us with the potential for growth in the coming decade.  According to the U.S. Census Bureau, the number of households earning $100,000 or more (in constant 2010 dollars) at September 2011 stood at 24.3 million, or approximately 20.5% of all U.S. households. This group has grown at four times the rate of increase of all U.S. households since 1980.” (Source: Toll Bros. 12/22/11 10Q Report)
TOL’s pre-tax income and revenue breakdown by geographic segment shows mostly improving trends, and also shows that the North and Mid-Atlantic regions are currently driving their profits, which is in line with the Northeast’s housing starts gains we mentioned earlier. Toll noted that its North segment’s 2011 revenue decrease was mainly due to many communities there being sold out:
TOLL-GEOG-INC
If you feel that the US employment picture will eventually improve in 2013, and improve Toll Bros’ sales and profitability along with it, TOL may be one of the best stocks to buy in 2012 for a long term speculative US housing trade, via selling cash secured puts, below TOL’s current share price. There are LEAPS available, (long-term equity appreciation security options), which don’t expire until Jan. 2014, which would give these trades the benefit of time to develop:
TOL-PUTS
The table illustrates how the put options’ yields and premiums decrease, the further below TOL’s current stock price the put strike price is. As always, there’s a trade-off between risk and reward. Although the annualized yields aren’t very high on these trades, unlike dividends, you’ll receive your put premium $ within 3 days of selling put options. Your broker will hold a cash reserve equal to the amount of puts that you sell, times the strike price, times 100. (Each options contract corresponds to 100 shares of the underlying stock.)  For example, selling one $13.00 put option requires a cash reserve of $1,300.00, and obligates you to potentially have to buy 100 shares of TOL at $13.00, if it falls below $13.00 before expiration in Jan. 2014.  Generally, most options aren’t exercised until close to or at expiration, because it’s usually more profitable for the option buyers to just trade the options themselves, instead of selling the underlying stock.
The other attraction that selling options offers is tax deferral: If you’re able to let these options expire in Jan. 2014, your tax bill won’t be due until April 2015. So, you’ll get paid up front, and have tax-deferred use of the option $ you receive for over 2 years.
(Note: You can see more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)
Although Toll doesn’t pay dividends, they do have a 20 million share buyback program, which they started in 2003, and greatly accelerated in 2011. The plan still has 8,786,000 shares that can be repurchased:
TOL-SHARE-REPURCH
One thing to beware of in this long term speculative trade, is that there’s a fair amount of short interest against TOL, and many other US homebuilders. In comparison, Lennar has a short float nearing 20%, and a higher beta of 1.71:
HOME-TECH'L
The homebuilders have had quite a runup in recent months, and TOL looks overbought on a stochastic chart, so you may be able to achieve even higher put premiums by waiting for the next pullback, when TOL’s share price should decline, and its put prices rise.
TOL-CHART

Disclosure: Author has no positions in TOL, LEN, or DHI at the time of publication.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

An Easy Strategy For Hedging 2011 Apple Gains

By Robert Hauver

If you were blessed with enough foresight to buy AAPL earlier in 2011 when it dipped, you probably have a profitable unrealized gain right now.  Once again, Apple was one of the best stocks to buy this year for price gains, rising over 24%, from $325.64, to approx. $405.12, as of 12/29/11.

Even though Apple doesn’t currently pay dividends, and isn’t normally part of our coverage of dividend stocks, in last week’s article we wrote about a lucrative, conservative strategy you can use to create your own AAPL dividend that has a higher yield than many high dividend stocks do.

This week’s article details one more way you can create decent income from Apple, and/or, if you now own AAPL shares, you could lock in a good % of 2011’s price gains. With so much uncertainty ahead in 2012 – a US presidential election, ongoing Eurozone debt problems, etc., many forecasters are predicting another volatile year in the market.

Selling Covered Calls is a strategy for hedging some of your downside risk on a stock, that offers you immediate income, and also has tax deferral advantages.  Since you only pay taxes on your options gains for the tax year in which the option expires or is closed out, you can often get tax-deferred use of your option income for 1-2 years.

For example, suppose on Jan. 3, 2012, you sell AAPL call options that expire in Jan. 2013. You get paid the call premium within 3 days of the sale, but you don’t have to report this income and pay taxes on it until April 2014, if you let it expire in Jan. 2013.

You can see more info on over 30 high yield Covered Calls trades discussed in our other recent articles in our Covered Calls Table.

Some of the key decisions to make when selling covered call options are:

1. How far out in time to sell covered calls – Generally, the further out in time you sell, the higher the premium, due to the time value of the options.  The trade-off, however, is the additional uncertainty of going further out into the future. Currently, there are AAPL options available in 2012-Jan, Feb, March, April, and Oct.; Jan 2013; and Jan 2014.  AAPL usually has high options yields and strong volume/liquidity, and there are many options to choose from.

This table below compares the current expiration months, using the same $410.00 strike price, with AAPL’s 12/29/11 price as a cost basis.

Call option premiums increase as you go further out in time, giving you a lower break-even, but a lower annualized yield also:

AAPL-TIME-405

“Static Break-Even” equals the difference between the stock’s cost of $405.12, and the call bid premium for each month’s strike price. If the stock remains static, (it doesn’t rise above the strike price at or near expiration), then the stock usually doesn’t get assigned/sold away from you. You keep your shares, and move on.  If the stock does rise above your strike price, your AAPL shares will get assigned/sold, and you’ll earn an additional profit. (In general, most assignments occur at or near the time of expiration.)

In the above examples, we used a $410.00 strike price, which is $4.88 above the $405.12 cost of AAPL.  This represents your potential assigned gain.  To calculate your total gain, just add the call bid premium to the potential assigned gain. Ex.) For the March 2012 $410.00 call, you’d receive a $21.05 call bid premium. If AAPL rises higher than the $410.00 strike price, most likely your shares will be sold/assigned, and you’ll also earn an additional $4.88 in price gains, for a total gain of $25.93.

How to hedge your 2011 price gains: The table below uses AAPL’s 1/3/11 $325.64 price as a cost basis, and shows what % of AAPL’s year-to-date 2011 profit you could hedge, via selling $410.00 covered calls in different expiration months.  As usual, the further into the future you sell, the higher premium you get, and the more of your profit you hedge, but your annualized yield decreases. (Note: The call bid premium is based upon what the current bid/offer is for each option, as opposed to the ask/sell price. There’s often quite a spread between the two, so you may be able to sell at a higher premium than the current call bid premium):

AAPL-TIME-325

2. Which call option strike price should I sell at – i.e., Should I choose an option strike price closer to, or much higher than the stock’s current price?

Option sellers usually base this decision upon their take on the market, and the stock’s future prospects for price gains.  The more bullish you are on a stock, the further “out of the money”, (above the stock’s current price), you may wish to sell calls at. The reason being that, when you sell a call option, you’re obligating yourself to potentially have to sell the stock in the future, at your sold call option’s strike price, no matter how much higher the stock rises. (Note: 1 option contract corresponds to 100 shares of the underlying stock.)

So, if you feel that AAPL might rise far beyond its current $405.00 price, (as do several analysts), you’d probably choose to sell at a higher strike price than a more bearish investor, who is more interested in locking in current price gains, and creating more immediate income, than in speculating on potential future price gains.  Indeed, that’s one of the other attractions of selling covered calls, you know exactly what your upside potential and your downside break-even are before you make the trade.

The trade-off is that call options further above the stock’s price, (out of the money), have a lower premium than those closer to the stock’s price, (at the money), or below a stock’s price, (in the money).

Here’s a comparison of various strike prices, using $405.12 as AAPL’s cost basis to further illustrate this point:

AAPL-STRIKE-405

Your potential assigned price gain per share increases with each higher strike price. However, your downside break-even price also increases.

The table below compares how much % of year-to-date AAPL profit you can hedge, using different strike prices:

AAPL-STRIKE-325

Again, your % of profit hedged declines, as you sell at a higher strike price, but your potential for additional price gains increases $5.00 with each higher strike price, in this example.

A bullish investor might choose a higher strike price for AAPL, leaving himself more potential for additional price gains on top of the current $79.48 year-to-date profit. (The additional price gains are calculated as the difference between $405.12 and the strike price.)  A less bullish. or conservative investor may wish to sell at a lower strike price, and hedge more of his year-to-date profit.  He’d also have a lower break-even.

Trading Range: If you sold a call at the $420.00 strike price from the table above, your trading range would be:

Max. Price Equivalent of $470.75, ($420.00 strike price plus $50.75 call bid premium), and Downside Break-Even of $274.89, ($325.64 stock cost basis less $50.75 call bid premium).

Valuations: Small wonder that AAPL is so popular with institutional and individual investors, when you consider its strong growth has happened during a period of recession and slow economic growth. 

AAPL-PEG

Financials: There’s not much to quibble about with AAPL’s financial metrics either, although many AAPL shareholders would like to see the company join other Tech firms, such as Cisco, and enter the ranks of dividend paying stocks. However, for dividend investors, selling covered calls and cash secured puts offer 2 lucrative alternatives for creating income from AAPL.

(Note: You can see details on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

APPL-ROE

Disclosure: Author is short puts of AAPL.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

How To Create An Apple Dividend

By Robert Hauver

Apple still isn’t part of the dividend stocks universe, in spite of its shareholders’ ramped up demands for the company to pay out some of its huge $51 billion cash pile as dividends. However, there’s an effective, lucrative strategy that we’ve often used, via which you can earn a higher yield on AAPL than on most high dividend stocks.

If you had been able to buy AAPL at $291.60 in 2011, would you have taken that risk?  How about $302.50?  As AAPL’s 52-week range is $310.50 to $426.70, both prices would have been quite profitable.  AAPL has been one of  best stocks to buy in 2011 for price gains, having risen 23.56% year-to-date.

But if you’re an income investor, not a trader, and AAPL still doesn’t pay dividends, what can you do?

Solution: Create your own “dividend” from Apple via selling cash secured put options below the current stock price, to give yourself the most desirable combo of a lower break-even and highest yield. Even Even though AAPL doesn’t currently pay dividends, we’ll show you below that it does have high options yields which can be very lucrative. The trade-off to manage is that the lower strike price you sell the put options at, the lower your break-even should be, but the lower your yield is.

(Note: You can see more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

Here are 2 examples of 2011 AAPL put-selling trades:

1. Jan. 2011 Cash Secured Put Selling Trade:

On Jan. 18, 2011, we sold Jan. 2012 $330.00 cash secured puts for $38.40, creating a break-even of $291.60.  These put options are worth only $.44 each at the time of this writing.

AAPL closed at $340.65 the day of this first trade, and had a 200-day moving avg. of $280.87, and a 50-day moving avg. of $322.64.

Our break-even of $291.60 was 3.82% above AAPL’s 200-day avg., and 9.62% below its 50-day avg.

AAPL-JAN TRADE

2. Oct. 2011 Cash Secured Put Selling Trade:

On Oct. 4, 2011, we sold July $345.00 cash secured puts for $42.50, creating a break-even of $302.50. These put options are worth only $19.15 each at the time of this writing.

AAPL traded for $372.50 the day of this trade. Its 200-day moving average was $350.55, and its 50-day moving average was $382.55.

Our $302.50 break-even was far below both the long and short-term avgs: 14.27% below the 200-day avg. and 20.9% below the 50-day avg.

AAPL-OCT TRADE

Our Oct. trade was certainly aided by the much higher market volatility present then, as the VIX “fear factor” hit a high of 46.88 the day we made our Oct. trade, vs. its 15.87 close when we made our Jan. trade.

This much higher volatility allowed us to sell put options at a strike price much further “out of the money” in Oct., ($27.50 below AAPL’s Oct. 4th price), vs. selling only $10 below AAPL’s Jan. 18th price.

Timing: In hindsight, the January 2011 trade was a riskier one, even though the break-even was lower, for a couple of reasons:

1. Our break-even was above AAPL’s 200-day average.

2. AAPL had not  entered the oversold region yet. You can see at the far left on the stochastic chart below, (bottom chart), that although we placed the Jan. trade just a few days before AAPL bottomed out at a $326 level, it wasn’t until late Feb. that AAPL entered the oversold low point on the chart:

AAPL-BlueChart

We made the Oct. trade when AAPL hit an oversold “valley” on the stochastic chart, and this better timing has played out thus far in accelerating the profit in this trade.

Here’s how the 2 trades compare in amount of total profit realized over roughly similar time periods. The Jan. trade only realized 20.80% of its potential profit in 72 days, while the Oct. trade has realized nearly 55% of its profit in 79 days:

AAPL-2 TRADE COMP

The lesson from these 2 trades is to try to wait for oversold conditions before selling cash secured puts. All other things being equal, this should help you to realize your potential profit sooner, and should also improve your cash flow. This is another example of the old Buffett saying, “Be greedy when others are fearful, and fearful when others are greedy”. In other words, some of your most profitable opportunities will emerge when the market looks bleak.  We made the Oct. trade on the heels of the -9.79% Sept. pullback, when US economic data was less rosy, and the European crisis was dominating the news – all in all, a rather dark atmosphere…

What action to take now: Keep this idea in your back pocket and wait.  AAPL is currently overbought on the stochastic chart, so wait for the next market downturn, and keep an eye on AAPL’s charts to see when it hits a “valley” low point at 20 or below on its stochastic chart. Volatility has subsided somewhat, but it’ll most likely return soon enough in 2012, given all of the current domestic and global economic and political issues in the news.

To walk through the details and mechanics of a cash secured put trade, please see this article: 2 High Yield Strategies For Hedging Dow Dividend Stocks, which also illustrates a covered call options trade.

The Covered Calls trades discussed in our other recent articles are listed in our Covered Calls Table.

Disclosure: Author is short puts of AAPL.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

2 Defensive Dividend Stocks Outperforming The S&P

By Robert Hauver

Looking to play defense in the market? As the market has vacillated between up and down months since July, income investors are seeking dividend paying stocks with less correlation-i.e., dividend stocks which are defensive during pullbacks, but still share in rallies. It has become more challenging to find such an animal, but they are out there. However, defensive stocks aren’t always the best stocks to buy for growth.  These two giant Healthcare dividend stocks, Lilly and Pfizer, have both outperformed the S&P in 2011, in both up and down markets:

LLY-pfe-perf

Performance-wise, LLY and PFE flip-flopped in the Sept. and Nov. pullbacks and the Oct. rally. Lilly just got a nice boost recently, after an analyst said that LLY’s anti-Alzheimer drug could double the share price, if proven to be effective, which he thought it had a 10-20% chance of.

Dividends:

LLY-PFE-DIVS

Financials: Lilly’ metrics outshine Pfizer’s, and also its Big Pharma peers.

LLY-PFE-ROE

Options: The put and call options trades listed in this article expire in April for LLY, and March for PFE.

Covered Calls: Although Lilly and Pfizer’s don’t have high option yields when compared to other stocks we’ve covered recently, such as CAT or CMI, both of the options trading strategies listed here give you a chance to significantly improve upon these stocks’ dividend yields over this 4-5 month period.

(You can find more details on these and more than 30 high yield covered calls in our Covered Calls Table.)

LLY-PFE-CALLS

Cash Secured Puts:  LLY’s put options offer more yield than PFE’s.  Since PFE and LLY have made 17% to 20%-plus gains year-to-date,  selling cash secured puts below the current stock prices might be the most conservative approach you could take in potentially accumulating shares. (Note: Put sellers don’t receive dividends.)

(There are more details on these and over 30 high yield options trades in our Cash Secured Puts Table.)

LLY-PFE-PUTS

EPS/Valuations: Due to issues with patent expirations, the future sales forecasts are sub-par for LLY and nearly flat for PFE. As we mentioned earlier though, there’s a trade-off between growth and defense in these stocks.

LLY-PFE-EPS

Disclosure: Author has no positions in LLY or PFE at the time of publication.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

3 Solid Industrial Dividend Stocks With High Options Yields

By Robert Hauver

In last week’s article, we showed that the Industrial sector has the 2nd best record for beating & meeting 3rd quarter earnings estimates. It also has the 2nd highest EPS growth estimate for the next fiscal year, trailing only Tech. This week we searched for additional attractive dividend paying stocks in the Industrials sector, focusing on finding the best stocks to buy for growth, valuation, financial metrics, and high options yields:

ETN-ITW-TYC-DIVS

Covered Calls: Although these aren’t high dividend stocks, you can easily earn a much higher overall yield from them, by combining their dividends with high call options yields.

These call options pay up to 11 times more than the dividends during these 4-5 month trades.

The Static Yield refers to the combination of the call option and dividend yields, which represents your total income if the underlying stock isn’t If the stock doesn’t rise above the call strike price at or near expiration.  The Total Potential Yield includes the potential price gain that you’ll realize if the stock’s price does rise above the call strike price.  For example, for ETN, you’d receive an additional $1.07/share, if the stock rises above $45.oo and gets assigned/sold away from you at expiration.

(You can see more details on these and more than 30 other high yield covered call trades in our Covered Calls Table.)

ETN-ITW-CALLS

Cash Secured Puts: This is a more conservative approach to take: Sell cash secured puts at a strike price below the stock’s current price, so you achieve an even lower break-even price.

As an example, selling ITW $45.00 March put options gives you a $42.20 break-even, which is approx. only 8% above ITW’s 52-week low, as opposed to being over 18% above its low, where it was at the time of publication.

Of course, there’s no guarantee that the stock won’t ge lower than your break-even price, but using this put strategy will decrease your risk more than if you’d just bought the stock outright.  As with the call options, there’s a big payoff disparity between the quarterly dividends and the options in these put trades, with put option premiums that are as high as 12 times the dividends.

(You can find more details on these and over 30 other high yield options trades in our Cash Secured Puts Table.)

ETN-ITW-PUTS

EPS: The EPS growth for the most recent fiscal year, quarter, and next fiscal year looks solid for all of these stocks:

ETN-ITW-EPS

Valuations: All of these firms have low Price/Sales and Next Year PEG’s that are right around the undervalued threshold of 1.00.:

ETN-ITW-PEG

Financials: These firms’ all have low debt loads, and their mgt. ratios are generally in line or better than their peers.

ETN-ITW-ROE

Technical Data: As their Relative Strength is in the low 50’s, all 3 stocks are in the neutral, “not oversold/not overbought” region.:

ETN-ITW-BETA

Company Profiles:

Eaton (ETN): Founded in 1911, Eaton is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuels, hydraulics and pneumatic systems for commercial and military use; plus truck and auto drive-train and power-train systems for performance, fuel economy and safety. Eaton has approx. 73,000 employees and sells products in over 150 countries.

Illinois Tool Works (ITW): Another multibillion dollar firm with nearly 100 years of history, ITW designs and manufactures fasteners and components, equipment and consumable systems and a large array of specialty products and equipment for its worldwide customer base. ITW owns more than 840 small businesses, which are decentralized, and operate in various markets, such as: industrial packaging, power systems/electronics, food equipment, and construction products, among many others.

Tyco Int’l (TYC): Tyco is a leading provider of security products and services, fire protection and detection products and services, and industrial valves and controls. Tyco had 2011 revenue of more than $17 billion and has more than 100,000 employees worldwide.  Tyco owns the dominant US residential security firm, ADT.

Disclosure: Author has no positions in ETN, ITW, or TYC at the time of publication.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

2 Easy Ways To Earn 20% On Industrial Dividend Stocks

By Robert Hauver

Although Industrials are down approx. -4% year-to-date, this sector may hold some of the best stocks to buy moving forward. Standard & Poor’s ranks Industrials as #2 in projected EPS growth for 2012, right behind Tech, which gives it the 3rd lowest PEG ratio for 2012:

S&P-EPS-Q3

(Data source: Standard & Poors)

Thus far, 86% of S&P 500 Industrials have beaten or met their Q3 2011 Earnings Estimates, 2nd only to Tech.

S&P-EPS-BEAT-Q3-'11

(Data source: Standard & Poors)

Although this sector looks attractive, finding undervalued high dividend stocks here with strong metrics is still a challenge.  A different approach would be to look for a lower-yelding dividend paying stocks, that have stronger growth and financials, and then utilize options to ramp up the dividend yields on these dividend stocks. Both Caterpillar and Cummins have less-than-avg. dividend yields, but you can greatly improve upon their dividends by selling options.

CAT-CMI-DIVS

Covered Calls: Take a look at the big difference between these high option yields and the dividend yields during these 6-7 month trades.

CAT’s call options pay over 9 times their dividends, while CMI’s pay over 15 times.

(The call and put options listed in this article for CAT expire in May, and those for CMI expire in June.)

(You can find more details on this and more than 30 other high yield covered call trades in our Covered Calls Table.)

CAT-CMI-CALLS

Cash Secured Puts: Another proven tactic is selling cash secured puts below the stock’s current share price, in order to achieve an even lower break-even price. The put trade listed here for CMI has a break-even only 3% above CMI’s 52-week low. These put options pay 9 to 16 times more than the dividends in these trades.

Your broker will secure a cash reserve in your account, equal to however many put contracts you sell, times the strike price of the put you sell. This amount is released once the puts expire or the trade is closed. Hence the term, cash secured puts. You’ll get paid for any puts and calls that you sell within 3 days of the trade, often even the same day. Note: put sellers don’t receive dividends, but call sellers do.

The best time to sell cash secured puts is normally when the stock is at the lower part of its range, which will give you an even lower break-even. Both CAT and CMI are higher-beta stocks, which fluctuate widely with the market, so check out their put prices during the next pullback.  If you need to be even more conservative, you could also sell cash secured puts at a strike price further below the current share price. This will give you a lower premium, but a lower break-even also.

(You can see more details on these and over 30 other high yield options trades in our Cash Secured Puts Table.)

CAT-CMI-PUTS

EPS/Sales Growth: Both CAT and CMI had strong EPS growth in their most recent fiscal years, and also strong sales and EPS growth in their most recent quarter:

CAT-CMI-EPS

Valuations: CAT’s PEG for its next fiscal year is very low, while CMI’s is consistent with the sector’s .87 PEG. CAT’s Price/Book and Price/Sales are consistent with its industry, while CMI’s Price/Book is a bit higher than its industry avg. of 2.58, but its Price/Sales is lower than the avg. of 1.30

CAT-CMI-PEG

Financials: Although CAT carries a heavier debt load, its interest coverage ratio is 5.9x.

CAT-CMI-ROE

Disclosure: Author is short puts on CAT and CMI.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

The Best Defensive Dow Dividend Stocks To Buy

By Robert Hauver

In spite of over 75% of S&P 500 firms beating or meeting earnings expectations, the Eurozone debt crisis, a slow US economic recovery & the continuing DC stalemate on economic issues, plus slower growth in China are combining to scare investors into a “risk off” position in November. The market has pulled back -9.59% this month, nearly as much as the Sept. selloff, as each of the last 5 months have alternated between rallies and pullbacks.

If you’re an income investor looking for which Dow dividend stocks have been the best stocks to buy in recent months for income and defense, these 3 dividend stocks have all sold off less during these 2011 pullbacks, and have also participated nicely in the rallies. (The only exception is HD’s pullback during the July rally.) They’ve also declined even less in this most recent pullback, (Oct. 28 through Nov. 23, 2011), than in the previous Sept. pullback.

HD-KFT-MCD-PERF

Valuations: HD appears to be the most undervalued stock, on a recent and future EPS growth basis. This seems logical, as HD suffered mightily during the downturn, and homeowners still have to fix their homes eventually. HD’s Price/book is higher that the Home Improvement industry avg. of 2.24, but HD’s very low .83 Price/Sales ratio is in line with industry avgs.

HD-KFT-MCD-PEG

High Options Yields can lower your risk and pump up your dividend yields: Although they’re defensive stocks, MCD and HD have options yields which can help you to turn them into virtual, short-term high dividend stocks.

Covered Calls: If you want to buy these defensive dividend stocks, but gain some downside protection, in the form of a quick “rebate”, selling covered call options is one way to go. In these 2 call option selling trades, you’ll get paid over 6 times the dividend amount now, when you sell call options against the underlying shares.

Selling covered calls allows you to realize some of the stock’s upside potential immediately, and turn a 3% annualized dividend yield into a 15% – to – 23%-plus overall yield. The rub is that you’re committing to sell the stock at the option strike price, even if the stock rises far beyond that price by the Feb. or March expiration date. But if you think the stock and the market will  stagnate or swing back and forth during that time period, selling covered calls is a proven way of hedging your bet.

(These call options expire in March for MCD, and expire in Feb. for HD.)

(You can see more details on this and over 30 other high yield covered call trades in our Covered Calls Table.)

HD-MCD-CALLS

Cash Secured Puts: If the recent monthly market reverses have your head spinning , and you want to be more conservative, another strategy is to sell cash secured puts at a strike price below a stock’s current price. This usually offers you an even lower break-even price, which lowers your risk even more, and improves your cash flow, since you’ll get paid put option premiums within 3 days of the trade, (often the same day), instead of waiting for quarterly dividends. (Unlike covered call sellers, put sellers don’t collect dividends.)

Your broker will hold in reserve an amount equal to the value of the strike price times 100, for every put contract that you sell, until the contract expires, or the position is closed out. Each options contract corresponds to 100 shares of the underlying stock.

These put options pay approx. 7 to 8 times more than the stocks’ dividends during this 3-4 month period.

The put options below also expire in March for MCD, and expire in Feb. for HD.

(You can find more details on this and over 30 other high yield options trades in our Cash Secured Puts Table.)

HD-MCD-PUTS

Financials: KFT’s Mgt. efficiency ratios are the weakest in the group, and are also below their peer group avgs, while MCD and HD both have above/avg. ROE and ROI for their peer industries.

HD-KFT-MCD-ROE

Technical Data: As usual with defensive stocks, these equities all have low beta’s. MCD and HD are still over 30% above their 52-week lows, but selling the put options listed above would give you a break-even that’s only 19% above MCD’s low, and 21% above HD’s low:

HD-KFT-MCD-BETA

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

How To Turn Dividend Aristocrats Into High Dividend Stocks

By Robert Hauver

The Dividend Aristocrats are thought by many dividend investors to be the best stocks to buy for dependable dividends. This makes sense, since these dividend stocks have raised their dividends every year for the past 25 years. However, even with investors scrambling for low risk yield, some of these dependable dividend paying stocks are out of favor in the market, and appear undervalued:

Dividends:

ADM-WAG-DIVS

ADM-WAG-PEG

Valuations: ADM and WAG both have low PEG’s for next year and the next 5 years. They also have very low Price/Sales and Price/Book ratios. WAG has been discounted by the market this year, as a result of its ongoing negotiation with Express Scripts, over pay rates for prescription drugs. If WAG drops the Express Scripts deal, (approx. up to 5% of revenue), they estimate it’ll take off $.21/share from its 2012 earnings, which will put WAG’s projected 2012 earnings about flat with 2011.

Options: Although ADM and WAG aren’t high dividend stocks, you can easily earn a high yield on them, via selling options.

(These put and call option trades all expire in March for ADM, and April for WAG.)

Covered Calls: These 2 trades have call option premiums that will pay you 9 to 12 times the amount of the dividends during the 4-5 month terms. (See the highlighted areas in the tables below.)

Other bonuses: You’ll get paid your option premiums within 3 days of the trade, (often the same day),  and you’ll lower your risk via having a lower break-even price.

(You can see more details on this and over 30 other high yield covered call trades in our Covered Calls Table.)

ADM-WAG-CALLS

Cash Secured Puts: If you’re wary of this current market, and you’d like to be even more conservative, another strategy is to sell cash secured puts at a strike price near or below the stock’s current share price. You can often achieve an even lower break-even price, as seen below with WAG, and lower your risk even more. Selling cash secured put options is a strategy via which you get “paid now to wait”. However, unlike covered call sellers, put sellers don’t collect dividends.

The put options below pay approx. 11 to 13 times more than the dividends during this 6-7 month period.

(You can find more details on this and over 30 other high yield options trades in our Cash Secured Puts Table.)

ADM-WAG-PUTS

Earnings: Although WAG and ADM aren’t growth stocks, they both had strong EPS growth quarter-over-quarter, and are projected to grow at steady rates during their next fiscal year:

ADM-WAG-EPS

Financials: ADM just announced this week that it will build a 265 million liter (70 million gallon) biodiesel plant in  Alberta, Canada, which will increase ADM’s North American biodiesel production capacity by 50%. Biodiesel produced at ADM’s facility in Lloydminster will help fulfill Canada’s renewable diesel mandate. (Since July 1, 2011, all diesel fuel and heating oil sold in Canada must contain at least 2 percent biodiesel.)

ADM, as the 2nd largest ethanol producer, has had its ethanol margins squeezed by ongoing rising corn prices, hence the lower than avg. operating margin seen below:

ADM-WAG-ROE

Disclosure: No positions at this time

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

2 Easy Ways To Triple Your Yields On Dow Dividend Stocks

By Robert Hauver

Do you think that Dow dividend stocks are the best stocks to buy now for dividends and safety? You’re not alone – the Dow has beaten these other major indexes year to date, and also in November, as of 11/10/11:

11

Although it trails the NASDAQ and the RUSSELL 2000 small caps, the Dow is also nearly even with the S&P 500 since the start of the March 2009 rally.

We found 2 Dow dividend stocks with good metrics and low beta’s, which are therefore less volatile than the market, but which also offer attractive dividends. Coca Cola Co. is also one of the Dividend Aristocrats, a group of dependable dividend paying stocks that have increased their dividends every year for the past 25 years:

CVX-KO-DIVS

You could also more than double your dividends on these stocks, via selling Covered Calls and Cash Secured Puts. (The call and put option trades listed below for CVX expire in June, and those for KO expire in May.)

Covered Calls: One of the big pluses of selling covered call options is that the call option premiums you sell are often more than 2 to 3 times the amount of the dividends during the term of the trade. (See the highlighted areas in the tables below.)

Two other bonuses: You’ll get paid your option premiums within 3 days of the trade, if not the same day, and, you’ll lower your risk by virtue of having a lower break-even price.

(You’ll find more details on this and over 30 other high yield covered call trades in our Covered Calls Table.)

cvx-ko-calls

Cash Secured Puts: If you want to be even more conservative, and achieve an even lower break-even price, selling cash secured put options below the stock’s current price is an options strategy via which you get “paid now to wait”. Unlike covered call sellers however, put sellers don’t collect dividends.

The put options below pay approx. 4 to 4.5 times more than the dividends during this 6-7 month period.

(There are more details on this and over 30 other high yield options trades in our Cash Secured Puts Table.)

CVX-KO-PUTS

Financials: For the most part, CVX and KO have better metrics than the DOW 30 averages, and both firms also have better metrics than their industry peers.:

CVX-KO-ROE

Valuations/Earnings: Although these monolithic firms certainly wouldn’t be considered growth stocks, they both had strong growth in their most recent fiscal years, and quarter over quarter. Analysts are currently predicting that CVX won’t be able to increase their earnings in their next fiscal year, but they may be wrong, given the volatility of oil prices that have arisen from the socio-political dramas of the Arab Spring, and many other oil-producing parts of the world. Coke has also managed to grow its earnings better than its beverage industry peers.

CVX-KO-PEG

Disclosure: Author is long shares of CVX.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

3 Defensive Dividend Stocks That Also Rallied In October 2011

By Robert Hauver

With the turbulent market spinning between rallies and corrections in 2011, are you looking for defensive dividend paying stocks that also have upside rally performance? The 3 Utilities dividend stocks in this article were some of the best stocks to buy in 2011 so far, since they’ve all beaten the S&P year to date, during the recent correction, and have also gained in price during the October 2011 rally:

ED-DUK-WGL-PERF

All 3 of these dividend stocks pay quarterly dividends and are listed in our High Dividend Stocks by Sector Tables.

DUK-ED-WGL-DIVS

Only Duke Energy has somewhat high options yields, and is listed in both our Covered Calls Table and our Cash Secured Puts Table.

Company Profiles:

WGL Holdings: WGL is a public utility holding firm that serves the D.C. metropolitan region.
Washington Gas, its leading subsidiary, has provided natural gas service to customers in the D.C. area for over 160 years and currently serves over one million customers in DC, Maryland and Virginia. WGL’s unregulated subsidiaries provide energy-related services to residential and commercial customers, including government organizations.

Con Edison: For over 180 years, Con Ed has served the metropolitan New York marketplace. Its principal business segments are: regulated electric, gas and steam utility activities, competitive energy businesses.  Con Edison of New York provides electric service to approximately 3.3 million customers and gas service to approximately 1.1 million customers in New York City and Westchester County, and also provides steam service in parts of Manhattan. The O&R division provides electric service to 301,000 customers in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service to 130,000 customers in southeastern New York and adjacent areas of eastern Pennsylvania.

Con Ed is a member of the S&P Dividend Aristocrats, having increased its dividends every year over the past consecutive 25 years.

Duke Energy: Duke is one of the biggest electric power companies in the US, supplying and delivering energy to approx. 4 million U.S. customers. Duke has approx. 35,000 megawatts of electric generating capacity in the Carolinas and the Midwest, and natural gas distribution services in Ohio and Kentucky. Duke’s commercial and international businesses own and operate diverse power generation assets in North America and Latin America, including a portfolio of renewable energy assets. Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company.

Financials:

DUK-ED-WGL-ROE

Valuations/Earnings:

Con Ed just reported Q3 2011 EPS of $1.31, vs. $1.24 for Q3 2010, and 9 months’ EPS of $2.94 vs. $2.69 during the same period in 2010.

Duke just reported Q3 2011 adjusted diluted earnings per share (EPS) of $.50, vs. $.51 for Q3 2010, and also increased its full year guidance to $1.40 – $1.45/share, from $1.35 – $1.40.

All 3 firms have valuations below the broad utility sector avgs:

DUK-ED-WGL-PE

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

Disclosure: Author owns no shares of WGL, ED, or DUK as of 11/3/11.
This article is written for informational purposes only and author will not be held responsible for
errors or omissions or losses sustained by third parties as a result of acting upon information herein.



How To Use Dividends And Options To Hedge Your Portfolio

By Robert Hauver

With the market’s violent meanderings these past 2+ months, “how to hedge your portfolio” has become a burning issue among investors. In this article we’re going outside of the high dividend stocks world and exploring the hedging potential of two different approaches to fighting market volatility and downturns.

Wouldn’t it be helpful to have an “inverse” vehicle that rises when the market slides, and, like your favorite dividend stocks, pays steady dividends? It seems that some US Treasury Bond ETF’s have been doing mostly just that during this bumpy time, and even year to date.

These 3 U.S. Treasury Bond ETF’s all pay monthly dividends and have been good hedging tools in 2011:

ETF-PERF

Profiles (Source – iShares website):

TLT: The iShares Barclays 20+ Year Treasury Bond Fund seeks to approximate the total rate of return of the long-term sector of the United States Treasury market as defined by the Barclays Capital U.S. 20+ Year Treasury Bond Index.

IEF: The iShares Barclays 7-10 Year Treasury Bond Fund seeks to approximate the total rate of return of the intermediate-term sector of the United States Treasury market as defined by the Barclays Capital U.S. 7-10 Year Treasury Bond Index.

TIP: The iShares Barclays Treasury Inflation Protected Securities Bond Fund seeks results that correspond generally to the price and yield performance, before fees and expenses, of the inflation-protected sector of the United States Treasury market as defined by the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L).

Moving Averages: These ETF’s are all above their moving averages, and very close to their 52-week highs.

ETF-AVGS

So, when should you buy them? If you’re bearish, and believe that any rally the market puts together in the near future will only be a short-lived bounce, you’d look to buy them on the dip that would most likely happen with a market rally. The stochastic chart below shows overbought and oversold extremes for TLT. Investors who bought TLT in early July would have timed it perfectly, as TLT was oversold at that time. This almost perfect “mirror” price chart of TLT vs. the S&P illustrates TLT’s inverse relationship to the equities market, and how the majority of its gains have come since the summer correction:

TLTvs.SP-ChartSmall

(Chart Source: Yahoo Finance)

Technical Data: TLT and IEF have negative betas , and TIP has a very low .10 beta , which is consistent with their use as hedges vs. the S&P. Average True Range is a measure of stock volatility, and is an exponential moving average (14-days) of the True Ranges. The range of a day’s trading is high minus low, and True Range extends it to yesterday’s closing price if that was outside of today’s range.

ETF-BEAT-ATR

How To Hedge Via Options Trading:

The CBOE Volatility Index, a.k.a. the VIX, or the “fear factor”, offers an additional portfolio hedging strategy, via trading options. The CBOE defines the VIX  as “an implied volatility index that measures the market’s expectation of 30-day S&P 500 volatility implicit in the prices of near-term S&P 500 options.” The CBOE also states that the VIX has a -0.78 S&P beta correlation. (Source: CBOE)

However, there’s a lot of debate about this. As you can see in the table below, the VIX price movement isn’t a mirror inverse of the S&P, but has moved in an opposite direction, albeit it more pronounced:

ETF-VIX-PERF

VIX Moving Averages:

ETF-VIX-AVGS

VIX Options:

A VIX options trade is basically a trade on volatility, which, in general, ramps up during market pullbacks, as investors increase their S&P put purchases in order to protect their portfolios. Given the dramas in DC, Europe, and the Arab spring movement, do you think that heightened volatility will ensue over the next few months? If you do, then selling cash secured puts vs. the VIX is one way to earn some income up front and protect your portfolio from market turmoil.  However, this strategy is a bit different than the put options trades you’ll normally see in our Cash Secured Puts Table.

In the following put option trade, the put bid premium allows you to achieve a break-even near the the 50-day average of the VIX, and potentially earn up to a 16% yield in a little over 2 months.

The Cash Reserve for this trade is $3250.00:

ETF-VIX-PUTS

VIX options are European style, meaning that they generally may be exercised only on the Expiration Date. However, you can still buy to close your sold put position at any time prior to the day of exercise.

VIX options generally expire on the third Wednesday of each month. VIX option exercise will result in delivery of cash on the business day following expiration. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $100.

The exercise-settlement value for VIX options (Ticker: VRO) shall be a Special Opening Quotation (SOQ) of VIX calculated from the sequence of opening prices of the options used to calculate the index on the settlement date. (Source: CBOE)

In the example above, the VIX price for the morning of 9/9/11 jumped $2.36, to $36.68, (as the S&P dropped 1.37%), which caused this $32.50 put to already fall in value from the $5.20 sale price to $5.00, so it could already be bought to close at a small profit, after one day.

Given the fast ups and downs of the VIX, i.e. the “volatility of volatility”, your most conservative approach is probably to buy to close any sold position once you’ve made your targeted profit. This option expires on Nov. 16, 2011.

Disclosure: Author is short VIX puts, and long TLT shares.

Disclaimer: This article is written for informational purposes only and isn’t intended as individual investment advice.

© 2011 DeMar Marketing All Rights Reserved.

Timber – A High Yield Asset That Never Stops Growing – May 27, 2009

Who says that money doesn’t grow on trees? Did you know that timber was one of the ONLY assets that appreciated in 2008?

Just take a look at the high dividend stocks in the diversified timber REIT sub-industry, and you might just might launch into a verse of Monty Python’s “Lumberjack Song”…

One Timber Reit that comes up in a screen for high dividend yields is Potlatch Corp., (PCH).

A metric that investors use when analyzing timber companies is the

amount of acres/share. At Potlatch’s current price of $26.77, you get approximately 38-39 acres/share, plus you get the rest of the business for free.

You can juice PCH’s high dividend yield even further, by selling January 2010 covered calls, essentially earning an extra, or “double dividend”.

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“To Buy or Not to Buy – That Is the Question…” – April 25, 2009

By Robert Hauver

If hapless Hamlet couldn’t “decide in Denmark”, he’d really have trouble buying stocks in the current market!

As value investors, we often have to assume a contrary position, and go against the crowd, which can be very difficult for most people to do.

After hearing all of the negative news about the economy and falling earnings, it takes a lot of will power to grit your teeth and make a commitment to buy some high dividend stocks, (or any stocks), even though your research may show them to have a strong business model, and to be undervalued.

So, how can you increase your odds of buying dividend paying stocks at the right price, and capturing the best dividend yield?

There are many market metrics out there, but some of the ones that have proven useful in finding the best stocks to buy are:

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“Money and Kids- Make Investing Fun” – April 18, 2009

By Robert Hauver

This is a helpful hint for those of you with young children or grandchildren. A good idea is to have the child cut the coupons which you redeem while shopping.

After cashing the coupons, it is advisable to give the child 25% and a % to charity with the balance going into a brokerage or savings account until there is enough to purchase his/her first equity.

One way to get them interested in investing is to find companies that will reward them for investing, by sending them fun items when they invest. Try to seek out dividend paying stocks, and then make sure that the dividend is always reinvested. Here’s a short list of some of the best stocks for this type of long-term investing:

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Einstein, Dividends, and The Rule of 72 – 04/04/09

By Robert Hauver

Even though Albert Einstein was famous throughout the world for his achievements in physics, such as his Theory of Relativity, the phenomenon he was most impressed by had to do with finance.

When asked what he considered to be the most powerful force in the universe, Einstein is reputed to have said, “compounding interest”. He went on to call this the “greatest invention in human history”.

Who are we to argue with a genius?

Compound interest provides a very powerful tool for amassing wealth in your portfolio, particularly when coupled with reinvesting dividends.

The Rule of 72 is why young people have such a great advantage when it comes to generating wealth, since they have time on their side.

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Market Timing Tips For Value & Dividend Investors

By Robert Hauver

You don’t normally hear the phrase “market timing”associated with value and dividend investing, since these type of investors usually employ a “buy and hold” strategy. However, when we dig a little deeper, we see that timing often plays a critical role in determining the success of a given stock investment, whether it’s in high dividend stocks, or undervalued stocks.

Since we don’t know the future, we have to make our best estimates as to when it will be the right time to buy a stock on our best stocks watch list. Keep in mind, these are not a replacement for fundamental stock analysis, they’re just a frame of reference for relative timing of a stock purchase or sale, after you’ve fully analyzed the stock.

 

  1. What? What is the market trend and sentiment?   If there has been a big run-up in market prices, now may not be the time to jump in. Alternatively, one of the toughest things for investors to do is go against the crowd when markets are trending heavily downward.

However, looking back at the October and November 2008, and March 2009 lows, this was an excellent time for buying severely undervalued stocks, due to all of the panic selling that was occurring then.

2. Where? Where is the stock now, in relation to its 52-week price range? Find out what range the stock has traded in over the last year, and even the past 3 years, if possible.  Is it near its lows, or making new ones? Conversely, is it making new highs?

3. Why? Why is this stock so cheap?  Is it really one of the best stocks to buy, or is there a good reason it’s so cheap?  Why is there such a high dividend yield?  If the stock has the highest dividend in its peer group, does it have the cash flow to support it?

Even though we dividend investors are always looking for those undervalued, best dividend stocks, you need to ask some important questions: Are there any big changes that will negatively affect the company’s ability to earn and compete over the long haul?

Conversely, why is the stock so expensive? Is there a positive new development in its business that has caused investors to push its price up, possibly to the point of being overvalued?

4. Who? Who is downgrading or upgrading the company? Do you agree? Even more important, who else is buying or selling this stock – are any major investors, such as Warren Buffett, and/or successful institutional investors buying or selling it?  This type of news is usually listed on the Yahoo online finance pages, among others, and can have a big impact on a stock’s price.

5. When? When are earnings announcements due, and when is the next ex-dividend date?  Stock prices can often run up prior to these two events, and then decrease thereafter, particularly near ex-dividend dates, since market makers try to discourage short term traders from playing the dividend recapture game, wherein the trader buys the stock shortly before theex-date and immediately dumps it thereafter.

Asking the above questions should help you in your hunt for the best dividend paying stocks, and will hopefully also help you to avoid buying or selling at the wrong time.

Author- Robert Hauver copyright 2009 DeMar Marketing, All Rights Reserved