Yearly Archives: 2010

Deep Drilling For Dividend Stocks – Is Seadrill Still Undervalued?

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By Robert Hauver

New week, same dilemma – finding undervalued dividend stocks in this latest rally.  This rally has seen the prices of many dividend paying stocks run up quite a bit.

Is a stock still undervalued when it’s risen over 41% year to date, like Seadrill, (SDRL)? When you look at a stock’s PEG ratio, (P/E divided by EPS Growth), the only thing that can counteract a rising “P”, (Price), is strong EPS growth.

With that in mind, we looked at Seadrill’s various PEG’s:

SDRL-PEG-2010-12-31

Since it has a 7% dividend yield, we’ve added SDRL this week to our High Dividend Stocks By Sector Tables, (in the Energy Section).

Some firms in this industry have some wildly divergent numbers, which tend to skew the overall avg., but, based upon the past and future PEG’s, and its P/Book and P/Sales numbers, SDRL looks more undervalued than its peers. It’s interesting to note, that the whole industry has a very low next year PEG of .47, which is probably due to the BP oil spill fallout.

Here are additional Financial metrics for SDRL:

SDRL-ROE-2010-12-31

Again, SDRL’s numbers are better than its peers, with the exception of Debt/Equity. One of the main reasons for their heavier debt load is that SDRL has invested heavily in modern, state-of-the-art deepwater drilling rigs, which, in turn, command a premium day rate, in these days of harder to find oil.

If you’re looking for a way to further juice SDRL’s dividend yield, selling covered calls offers an interesting additional premium:

SDRL-CALL-2010-12-31

In addition to the $3.45 in dividends and call premiums, you might also receive an additional $.88 in price gain, (the difference between the  $34.12 stock price and the $35.00 Call Strike price), if your shares are assigned.  This would equal a total potential gain of $4.33/share, or 12.7% nominal yield, (23.60% annualized).

(We’ve added SDRL to our Covered Calls Table this week, where there are more details.)

If you’re leery of SDRL’s current price, you could achieve a lower entry point, and get paid to do it, by selling Cash Secured Puts:

SDRL-puts-2010-12-31

The first of these put option trades is the more conservative one, which gives you a lower break-even point, which is closer to SDRL’s current 50-day avg., but it has a lower yield than the second trade, which is more bullish.  You can find more details about this and other put options trades, in our Cash Secured Puts Table.

Company Overview: Seadrill is a leading offshore deepwater drilling company, with a fleet of 54 units for operations in shallow to ultra-deepwater areas in harsh environment and benign environments, and operates in 15 countries on four continents.

Disclosure: Author is short SDRL puts.

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

2 Undervalued Basic Materials Dividend Stocks WIth Earnings Growth & High Options Yields

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By Robert Hauver

Is it still possible to find undervalued dividend paying stocks after this fall’s rally? Since the Basic Materials sector has been the leading sector during the past 3 months, having risen 16%, you’d think that there wouldn’t be any undervalued dividend stocks there, but we’ve found 2 that may fit the bill, even though they’ve both had good gains this past quarter:

Southern Copper (SCCO): As you may know, copper has been on a royal tear in 2010, up 28%, but many analysts feel that it has a long way to go in 2011.  Forbes reports that, “Copper has risen over $1,100 a metric ton or 12.5% just since Forbes recommended its purchase barely a month ago, when Goldman Sachs recommended copper– then selling for $8220 a metric ton–as the commodity to own in 2011– predicting its eventual rise to $11,000 a metric ton by the fourth quarter of 2011.  JPMorgan also has applied to introduce an ETF that will invest solely in copper and copper-related investments. If the bank does own such a large position in copper, it will increase political pressure to put a limit on the positions a single commodity trader can take.” (Source: Forbes.com)
China, the world’s largest copper consumer, recently said its November refined copper imports surged 37% compared vs. October.  On a year-over-year basis, Chinese copper imports jumped 19% to 232,298 metric tons.

Marathon Oil (MRO): Still being percieved as mainly a downstream refining firm, Marathon has not been credited with expansion of its exploration and production business. Divesture of underperforming refineries that don’t fit strategically could boost performance and change perceptions. Refinery upgrading projects will decrease input costs by expanding heavy-oil refining capacity and increase margins with higher diesel output. Had Q3 2010 net income of $696 million, a 69% increase from the same period a year earlier. Earnings benefited from higher oil and natural gas price realizations, improved refining margins, and increased production volumes during the quarter. Production available for sale during the quarter rose to 405,000 barrels of oil equivalent per day, at the upper end of the company’s previous guidance.(Source: Morningstar)

Both stocks have low next year and 5 year PEG ratios, and below average Price/Free Cash Flow/Share:

MRO-SCCO-PEG-2010-12-24

The 2 stocks appear evenly matched in growth valuations, but MRO has quite the edge in Price/Book and Price/Free Cash Flow/Share.  SCCO is also above the Metal Mining industry avg. for Price/Book of 8.16, but below the very high industry avg. of 71.41 for Price/Free Cash Flow/Share. MRO’s Price/Book is way below its industry avg. of 2.12, and P/FCF/Share is miniscule vs. the industry avg. of 34.96.

Management Metrics are much more of a mixed bag:

MRO-SCCO-ROE-2010-12-24

While SCCO has a much higher dividend payout ratio and more debt, it’s the clear winner in ROE, ROA, ROI, and profitability.

The following Covered Calls and Cash Secured Puts trades illustrate the big difference in the volatility of these 2 firms – MRO’s 1-month volatility is 16.09, while SCCO’s is 24.43

The Covered Call option yield for SCCO is over double that of MRO:

MRO-SCCO-CALLS-2010-12-24

Also, note how the above call options yields are much higher than each firm’s dividend yield – SCCO’s call option yield is over 6 times its dividend yield, while MRO’s is over 4 times.

(You can find more details in our Covered Calls Table.)

Again, SCCO has much higher options yields than MRO in these Cash Secured Put options trades, with SCCO’s put yield almost 2 times that of MRO:

MRO-SCCO-PUTS-2010-12-24

(There are further details in our Cash Secured Puts Table.)

Here’s a snapshot of both stocks’ share performance and some technical trading info:

MRO-SCCO-PERF-2010-12-24

Like many other stocks in 2010, both of these stocks have made most of their year-to-date gains in the last quarter. They’re both sitting just below their 52-week highs, and have similar relative strength,  above the overbought threshold of 60.

So here we’re presented with an interesting conundrum: even though their PEG valuations seem low, the fact that they’re near their 52-week highs would cause most traditional value investors to either wait for dips before buying them, or to sell cash secured puts.

SCCO is certainly being carried along in the current Copper rush, and copper stocks should benefit if JP morgan does start a copper-related ETF. Here’s more fuel for the fire: a discounted future earnings calculation values SCCO at over $73.00, and MRO at over $67.00.

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only.

3 Small Cap Dividend Stocks With Good Earnings Growth

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By Robert Hauver

Small cap stocks have outperformed large and mid caps this year, and growth stocks have outperformed value stocks in all 3 market cap sizes.  With that in mind, we went hunting for some small cap dividend paying stocks that have past, present and future earnings growth, low PEG’s, and reasonable debt loads.  We came up with these 3 dividend stocks:

Advance America, Cash Advance Centers (AEA): Largest provider of payday cash advance services in the United States, as measured by the number of payday cash advance centers operated. Payday cash advances are small-denomination, short-term, unsecured advances that are typically due on the customer’s next payday. They provide these services primarily to middle-income working individuals.

Ennis inc. (EBF): One of the largest private-label printed business product suppliers in the United States. Ennis offers an extensive product line from simple to complex forms, laser cut-sheets, negotiable documents, internal bank forms, tags, labels, presentation folders, commercial printing, advertising specialties, screen printed products, and point-of-purchase display advertising.

Textainer Group (TGH): World’s largest lessor of intermodal containers with a total fleet of more than 1.3 million containers, representing over 2,000,000 TEU. They lease containers to more than 400 shipping lines and other lessees, including each of the world’s top 20 container lines. Yhey are also the primary supplier of leased containers to the U.S. Military.

Selected Financial & Management Metrics vs. S&P 500:

AEA-EBF-TGH-ROE-2010-12-16

The dividend yield is above average for all 3 stocks, and TGH has the edge in ROE and margins. TGH has a higher debt load, due to its capital intensive industry.

All three firms have a conservative dividend payout ratio:  AEA: 39%   EBF: 36%   TGH: 45%

Valuation Metrics:

AEA-EBF-TGH-PEG-2010-12-16

AEA looks like the most undervalued firm here. However, this is mainly due to its price having been beaten down this year, over concerns about possible future negative legislation cutting into its payday loan business.

AEA has already experienced some negative legislative impact in some of the states in which it operates.

AEA’s shares have fallen over 9% in 2010, as opposed to EBF, which is up almost 27%, and TGH, which is up over 84%.  It’s interesting to note, though, that even with these big price gains, EBF and TGH still have PEG’s under 1 for next year and the next 5 years. All 3 stocks are below the S&P average price to free cash flow.

There are Covered Calls available for AEA and TGH:

AEA-TGH-CALLS-2010-12-16

Note: If your AEA shares were assigned in this trade example , your net covered call premium would be $.42, since the $5.00 strike is $.18 below the current $5.18 share price. (You can find more details on these trades in our Covered Calls Table.)

There are also Cash Secured Put Options trades for AEA and TGH:

AEA-TGH-PUTS-010-12-16

(You can find more details on these put options trades in our Cash Secured Puts Table.)

Disclosure: No positions

Disclaimer: This article is written for informational purposes only.

3 Undervalued Consumer Goods Dividend Stocks With High Options Yields

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By Robert Hauver

This week we looked for undervalued dividend paying stocks in the Paper & Paper Products Industry, an industry which should benefit from an improved demand and reduced supply. We screened for dividend stocks with strong ROE, EPS growth -(historic and projected), low short ratios, and high options yields, among many other metrics.

We came up with these 3 stocks, which aren’t the highest dividend stocks around, but they do offer attractive options yields, which are listed further on this article.

Glatfelter (GLT): One of the world’s leading manufacturers of specialty papers and fiber-based engineered paper products. Many of its items are targeted at relatively small, niche markets with a limited number of suppliers. The company serves customers in a variety of sectors, including trade book publishing, envelope and converting, food and beverage, carbonless, pressure-sensitive, digital imaging, composite laminates, and feminine hygiene. Glatfelter’s papers are used for tea bags, coffee fil- ters, textbooks, metallized labels for beer bottles, postage stamps, adhesive tape, playing cards, laminate flooring, adult incontinence, and pre-moistened wipes, among other uses. Net sales in the U.S. accounted for 70% of total sales in 2009, Germany 16%, United Kingdom 11%, and other countries the remainder. (Source: Standard & Poor’s)

Neenah Paper (NP): A leading international producer and distributor of premium fine papers and technical products used in filtration, tape, abrasives, and other specialty markets.  Spun off from Kimberly Clark in 2008, NP now has two business segments. In 2009, the technical products business accounted for 55% of revenues and fine paper 45%. In its fine paper business, NP produces premium writing, text, cover and specialty papers, which are typically used in annual reports, corporate identity packages, invitations, personal stationery, and high-end packaging for point of purchase advertising. The technical products business is a leading producer of transportation and other filter media, durable, saturated and coated substrates used in tape, label, abrasives, filtration, medical packaging, wall covering, and image transfer markets. On a geographic basis, 63% of sales were generated in the United States and 37% came from Europe in 2009.  (Source: Standard & Poor’s)

Temple Inland (TIN): Following a major transformation in 2007, Temple-Inland is now focused on corrugated packaging and building products. Its corrugated packaging segment (84% of 2009 sales) makes containerboard and converts it into boxes. The building products segment (16%) produces wood products, including lumber, particleboard, medium density fiberboard, gypsum wallboard and fiberboard. The company serves over 9,000 corrugated packaging customers with 15,000 shipping destinations from its seven paper mills and 63 converting facilities. (Source: Standard & Poor’s)

Here’s an industry comparison for management and profitability:

NP-GLT-TIN-ROE-2010-12-09

The comparative ROE’s and operating margins look good, but TIN’s debt load is high, even for its capital intensive industry.

The valuations for these stocks are attractive for the coming year, (particularly next year PEG):

NP-GLT-TIN-PEG-2010-12-09

TIN and GLT shares have climbed back into positive ground during the past quarter.

The table below shows their share performance, ownership, market caps, and more selected valuation metrics:

NP-GLT-PERF-VAL-2010-12-09

GLT and NP look more undervalued than TIN on a Price/Sales, Price/Book, and Price/Free Cash Flow basis.

You can greatly improve upon the dividend yield of each of these stocks by selling covered calls or cash secured puts.

Here’s how the  Covered Call options stack up:

NP=GLT-TIN-CALL-2010-12-09

In addition to the static yields listed above, you also have the potential for price gains.  For example, even though GLT’s static yield is only 9.83%, since there’s $1.83 spread between the current price and the strike price, you’d realize an additional 23% if the shares are assigned. (There are more details on these call options trades in our Covered Calls Table.)

The Cash Secured Puts for these stocks also offer attractive yields:

NP-GLT-PUTS-2010-12-09

There are more details on these put options trades in our Cash Secured Puts Table.

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only.

An Undervalued Micro Cap Dividend Stock With A 9 % Dividend Yield

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By Robert Hauver

When government currency printing presses go into full swing worldwide, many investors typically look to diversify their assets, via collectibles, such as coins, stamps, and memorabilia.  Another historically proven trend is that micro cap stocks tend to do well in post-recession eras. One way to play both of these trends is to buy one of the strongest microcap dividend paying stocks available, Collector’s Universe, (CLCT).

With its approx. 9%-plus dividend yield, CLCT sits atop our High Dividend Stocks by Sector Tables, (in the Consumer Discretionary sector).

CLCT also has some of the strongest financial metrics in the universe of micro cap stocks:

CLCLT-ROE-2010-12-02

CLCT also has a reasonable 62% dividend payout ratio.  They recently increased their quarterly dividend to $.325/share, from $.30/share, which equals a 9.18% dividend yield, at their current price of $14.16/share.  Their next ex-dividend date should be around the first week of February.  The 52-week price range is $7.59 – $16.95.

CEO McConnell stated recently, “We have chosen to invest prudently in sales and marketing expense to drive future growth and are specifically encouraged by the early results in Europe through our Paris office.  Your Board remains committed to a strong and stable dividend policy, while maintaining sufficient corporate financial flexibility.”

CLCT’s Valuations look favorable vs. other Micro Caps:

CLCT-PEG-2010-12-02

CLCT looks pretty good vs. these other micro-caps, but how does it fare against its industry group?

It looks very good vs. the broad Business Services industry:

CLCT-BIZSERV-2010-12-02

Unfortunately, CLCT’s closest competitors, Beckett Media, H.R. Harmer, and Krause Publications, are all privately held, so their financial info isn’t as readily available as Collector’s Universe. (Source: Yahoo Finance)

In their first fiscal quarter 2011, (ending 9/30/2010). CLCT’s normalized net income before special tax items was $1.86/share, vs. $1.84  a year earlier.   (The results for the first quarter of fiscal 2011 reflect a tax provision of $0.7 million as a result of the release of valuation allowances against deferred tax assets at June 30, 2010, which represented an increase of $0.6 million, as compared to the tax provision in last year’s first quarter.  Cash taxes paid remain minimal.)

There are no covered calls or cash secured put options available for CLCT.

CORPORATE PROFILE: Collectors Universe, Inc. is the leader in third-party grading and authentication services for high-value collectibles. The Collectors Universe brands are among the strongest and best known in their respective markets. We authenticate and grade collectible coins, trading cards, tickets, autographs, memorabilia and stamps. We also compile and publish authoritative information about United States and World coins, collectible sports cards and sports memorabilia and collectible stamps.

Grading and Authentication Services – Coins, trading cards, autographs, memorabilia and stamps comprise our principal authentication and grading markets. Our brands in those markets include: Professional Coin Grading Service (PCGS), the world’s leading third-party coin grading service; Professional Sports Authenticator (PSA); the world’s leading third-party sports card grading service; PSA/DNA Authentication Services (PSA/DNA), the largest and most respected autograph authentication provider; and Professional Stamp Experts (PSE), the world’s leading third-party stamp grading service.(Source: CLCT website)

Disclosure: Long shares of CLCT

Disclaimer: This article is written for informational purposes only.

An Undervalued Chinese Dividend Stock WIth High Options Yields & Great Earnings

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By Robert Hauver

12/4/10 update: CISG has responded vigorously to negative allegations from a small research firm, concerning its employee incentive “Scorecard” plan and its gross margins. Firstly, many of the plan’s incentive programs are paid for by CISG insurer partners, at no cost to CISG. Secondly, CISG Chairman Hu stated that any and all expenses related to this plan have been properly reported in CISG’s financial reports, and that CISG’s incentive plan was approved by the national Chinese insurance review board. CEO Hu also said in the Dec. 3rd conference call that CISG’s margins can’t be logically compared to the much smaller firms that the analyst used in her report, since newer firms often have much smaller margins. He pointed out that it took CISG 6 years of lower margins until it turned a profit in 2004, and that , as its volume has grown, CISG is able to earn much better brokerage commissions from its insurer partners. (CISG’s volume grew over 10 times from 2005 to 2010.)  CEO Hu also mentioned that the analysts reports may be part of a short selling campaign launched by hedge funds.

CISG has also announced the following:

  • A $100 million share buyback program – This is approx. 12% of their stock, a significant portion, and should serve to bolster CISG’s metrics a great deal, in addition to decreasing the supply of shares in the market.
  • 6-month moratorium on CISG directors/officers selling shares – CISG’s directors/officers will not sell any shares over the next 6 months.
  • CEO Hu and CEO Ge have personally purchased 100,000 shares since Nov. 24th

Original Article:

Looking for undervalued, Chinese dividend paying stocks with strong earnings, that will share in China’s future growth?  Take a look at CNinsure, (CISG), a dividend stock whose Q3 2010 net income rose 43%, and revenue rose 30%. After CISG reported these stellar Q3 earnings, the stock got beaten up in the market, (probably by short sellers – the short float is at 7.10%), before bouncing right back 13% the next day, when the firm’s officers did the right thing, and said that they’ll be buying shares of their company.  CEO Yinan Hu said in a statement that the purchase is an act of confidence in CNinsure’s stock, and said CFO Peng Ge will also purchase shares.  Hu didn’t say how much stock the managers planned to purchase, but said the shares were undervalued. Cninsure President Qiuping Lai attended a Forbes Asia dinner in Hong Kong on Tuesday, and said that business prospects were good, without referring to any specific earnings figures.

During the earnings call, CEO Hu said, “Robust growth of our three existing business lines continued into the third quarter with the life insurance business and claims adjusting business growing 109.1% and 34.3% year-over-year, respectively. The overall commission rate from the property and casualty insurance business increased over the previous quarter, which led to a year-over-year growth of 6.7% in our property and casualty insurance business in the third quarter as compared to year-over-year decline of that in the second quarter. We believe there is still room for further improvement in our property and casualty insurance commission rate.”

Although CISG’s modest 1.21% dividend yield* prevents it from  being listed in our High Dividend Stocks by Sector Tables, you can still earn double-digit high options yields from this stock, through these 2 options trading strategies :

1. Covered Calls -  Selling covered call options now would achieve a nearly 23% annualized static yield, even without adding in any potential price gains:

CISG-CALL-11-26-10

Our Covered Calls Table includes more details on the above trade, which could earn over 30% annualized, if the shares get assigned.

Here’s an additional kicker – there’s a wide range of prices between the $2.85 call option premium listed above, and the ask prices, so you may be able to sell these covered call options at an even higher price, and improve your yield.

For example, I was able to sell these same July $22.50 calls for $3.20 on Friday, even though the bid was only $2.85, which increased the static yield to 25.47% annualized, with a potential assigned yield of over 31%.

2. Cash Secured Puts – Selling cash secured put options could also earn you a 20%-plus annualized yield, based upon the Friday’s $2.55 bid:

CISG-PUT-2010-11-26

You’ll also find more details on this and other cash secured put options selling trades in our Cash Secured Puts Table.  Once again, there’s a wide bid-ask price spread for these options, so you may be able to sell at a higher price, and earning high options yields better than the one shown above.

* NOTE: Many financial websites incorrectly list CISG’s dividend yield as being over 4.5%. CISG has an annual payout, not quarterly. Their 2010 ex-dividend date was in May, and their annual payout was $.26/share.

Outlook:

CISG expects its net income attributable to the Company’s shareholders to grow by approximately 32% for the fourth quarter 2010, vs. Q3 2009, excluding non-recurring investment income incurred by business combination achieved in stages. The Q3 earnings report also states, “We are now building the groundwork for our e-commerce insurance, insurance brokerage, consumer finance and wealth management businesses in an effort to turn our blueprint for the next five years into reality. Examining all the opportunities and challenges, we firmly believe that the Company will be able to continue its strong growth momentum for the next few years.

Profile:

CNinsure Inc., founded in 1998 and headquartered in Guangzhou, is a leading independent insurance intermediary company operating in China. CISG’s distribution network reaches many of China’s most economically developed regions and affluent cities. It distributes a wide variety of property and casualty insurance products and life insurance products underwritten by both domestic and foreign insurance companies operating in China, and offer insurance claims adjusting services, such as assessment, survey, authentication and loss estimation, as well as other insurance-related services to individuals and institutions. As an insurance intermediary, the Company is not exposed to any underwriting risks.

Over the past 11 years, CNinsure has established a robust distribution and service network across China. As of June 30, 2010, it had 55 affiliated insurance intermediary companies operating in the PRC, of which 49 are insurance agencies, three are insurance brokerages and three are insurance adjusting companies. With 46,857 sales professionals, 1,358 claims adjustors and 576 sales and service outlets, its distribution network reaches 23 provinces, including some of China’s most economically developed regions and affluent cities in China, such as Beijing, Shanghai, Guangzhou and Shenzhen.  The company is a member of this year’s Forbes Asia Best Under A Billion List.

CISG stacks up well vs. its Insurance Broker peers:

CISG-COMP-2010-11-26

Disclosure: Author is long CISG shares, and short CISG puts and calls.

Disclaimer: This article is for informational purposes only.

3 Undervalued Dividend Aristocrats With High Options Yields

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By Robert Hauver

If you’re looking for steady dividend paying stocks with a long history of paying dividends, the S&P Dividend Aristocrats is a good place to start your research.  These stocks have all increased their dividends each year for the past 25 years.  This week we screened the S&P Dividend Aristocrats for dividend paying stocks with low next-year PEG ratios, strong next year EPS estimates, low debt loads, attractive financial & management metrics, and low to moderate price gains over the past year.

We came up with 3 prospects: Aflac, (AFL), Leggett & Platt, (LEG), and Lowe’s, (LOW). Lowe’s and Leggett & Platt are plays on the consumer, via the home improvement and home furnishing categories, while Aflac sells supplemental accidental and health insurance, mainly through employers. With a 5%-plus dividend yield, LEG is listed in the Consumer Discretionary sector of our High Dividend Stocks by Sector Tables.

Financial/Mgt. Metrics:

As you can see, all 3 firms have a relatively low debt load, but AFL has the best ROE and Profitability numbers.  However, LEG wins in the dividend yield category:

AFL-ROE-2010-11-16

Share Performance:

AFL-LOW-PERF-2010-11-15

Although  AFL’s 1-year and YTD share price performance is much higher than LEG and LOW, AFL still looks undervalued, on a PEG basis:

Valuation:

AFL-LOW-LEG-PEG-2010-11-15

Although AFL’s next-year EPS growth estimates are the lowest of the group, its much lower P/E translates into a lower Next Year PEG of .76. AFL also has the lowest 5-year PEG of the group, with .97.

There are Covered Calls and Cash Secured Puts available on all 3 of these dividend stocks. In fact, AFL and LEG both have high options yields, ranging up to the 20%-plus range, for these Covered Call options:

AFL-CALL-2010-11-16

You can find more details in our Covered Calls Table.

The Cash Secured Put options have a broader range, and also offer double-digit annualized yields:

AFL-PUT-2010-11-16

There are more details for the above put option sales in our Cash Secured Puts Table.

Disclosure: No positions yet.

Disclaimer: This article is written for informational purposes only. © 2010 DeMar Marketing. All Rights Reserved.

An Undervalued Chinese Dividend Stock With High Options Yields

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By Robert Hauver

In spite of this week’s 2% pullback, the S&P is up almost 15% since Sept. 1st, so we went looking for foreign dividend paying stocks that haven’t advanced as much as the general market, but still have strong metrics, low debt, and good growth prospects for next year. We came up with China Mobile, (CHL), a dividend stock which is also the biggest mobile firm in the world.

With over 522.283 million customers, China Mobile, (CHL), has the world’s largest mobile customer base, and dominates the Chinese mobile market, with a market share of approximately 70.6% in Mainland China. The Group’s GSM global roaming services covered 237 countries and regions and its GPRS roaming services covered 182 countries and regions.

The Company’s majority shareholder is China Mobile (Hong Kong) Group Limited, which, as of 31 December 2009, indirectly held an equity interest of approximately 74.22% in the Company through a wholly-owned subsidiary, China Mobile Hong Kong (BVI) Limited. The remaining equity interest of approximately 25.78% of the Company was held by public investors.

With a 3.5%-plus dividend yield, CHL just made it into the Telecom stocks section of our High Dividend Stocks by Sector Tables.  However, it also has some high options yields, which we’ve listed later in the article.  Here’s how CHL compares to its Wireless Industry Peer Group:

CHL-ROE-2010-11-12

CHL also has a low dividend payout ratio of 43.02%.

Although analysts’ 5-year EPS growth projections aren’t very high, CHL does have a low next year PEG ratio, which supports short-term options trading strategies, such as selling Covered Calls and Cash Secured Puts.

CHL-PEG-2010-11-12

The following 2 option trades expire in June 2011:

CHL-CALL-2010-11-12

You can find more details on the above call option trade in our Covered Calls Table.

Selling June cash secured put options would also net you a double-digit annualized yield:

CHL-PUTS-2010-11-12

We’ve added the above put trade this week to our Cash Secured Puts Table, which lists additional details.

CHL Market Analysis:

With revenue and a subscriber base more than twice the size of it closest competitor, China Mobile can afford more spending on technology and products and can launch new services at a lower cost per customer, thereby fetching higher margins than its rivals. A strong brand helps the carrier attract and retain not only high-spending business subscribers, the most profitable segment, but also the best mobile application developers and business partners, which reinforces China Mobile’s competitive edge in service offering and user experience.

The growth prospects for China Mobile remain attractive, as the carrier benefits from rising mobile penetration in China. The current penetration rate of around 50% is significantly below that of emerging markets such as Mexico and Brazil (at over 70%), and this gap should narrow in the coming years, with rising disposable income levels in China. While the urban markets may have become saturated, most of the future growth will come from the vast rural areas, where income levels of 800 million residents are lower than in the cities, but are growing steadily. These rural markets are a sweet spot for China Mobile, which, with its lower cost base, can afford to roll out basic voice plans and entry-level handsets to attract price-sensitive rural residents, and still make decent profits. Its rivals, China Unicom, (CHU) and China Telecom, (CHA) , probably can’t afford to compete aggressively in this market.

However, China Mobile faces a tough fight in the 3G market, where its competitors enjoy considerable advantages based on technology.
(CHL is mandated by the Chinese government to provide 3G services based on a nascent home-grown technology standard called TD-SCDMA(TD), while its rivals can deploy commercially mature 3G technology with a well-established vendor network.)  In the long term, this could erode CHL’s competitive advantage. (Source: Morningstar)

Disclosure: No positions at this time

Disclaimer: This article is written for informational purposes only.

Top 5 Dogs Of The Dow – Highest Dividend Stocks & Options Yields

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By Robert Hauver

Looking for well-known high dividend stocks?  The Dogs of the Dow strategy advocates buying the 10 Dow dividend paying stocks with the highest dividend yield.  This week we narrowed this group down to 5 stocks with the highest dividend yields and the highest option yields.  As usual, there are mixed metrics among the group:

DOGS-Dow-ROE-2010-11-04

Verizon’s ROE, (Return On Equity), of just 1.08, looks particularly flea-bitten, when compared to the rest of the pack.

Valuation metrics:

DOGS-Dow-VAL'N-2010-11-04

While the long-term PEG ratios for these stocks aren’t very compelling, the next year PEG’s for 2 of them, Merck and Kraft, look attractive, as they’re below 1.  This plays into the idea of a shorter term strategy, such as selling Covered Calls or Cash Secured Puts, with Feb. – April expiration dates.

The basic Covered Call option yields for these dividend stocks are listed below.  We’ve listed the complete info for these trades, including expiration dates, and the additional potential price gains, in our Covered Calls table.

DOGS-Dow-CALLS-2010-11-04

The Cash Secured Put options for these stocks also currently offer high options yields:

DOGSDow-Puts-2010-11-04

We’ve added these trades this week to our Cash Secured Puts Table, where you’ll find more details.

Disclosure: Author is short T calls and puts, and long T shares.

Disclaimer: This article is written for informational purposes only.

© 2010 DeMar Marketing.  All rights reserved.

Cummins – An Industrial Dividend Stock WIth Great Earnings and High Options Yields

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By Robert Hauver

Cummins, (CMI), is an Industrial dividend stock that just reported Q3 2010 earnings that blew away their Q3 2009 numbers, and also increased its credit rating during the quarter:

CMI-Earns-2010-10-27

The results were favorably impacted by $32 million due to a legal ruling in Brazil involving tax on imports from 2004 through 2008. (Adjusted net income excludes the Brazilian tax gain.)

All 4 of CMI’s market segments had strong Q3 Sales and Earnings Growth:

CMI-Sales-2010-10-27

Cummins COO said, “Many of our U.S. markets remained weak as a result of the slow recovery in the U.S. economy,”, and added, that the company doesn’t “expect to see any meaningful improvement until 2011” in the U.S., BUT, business in emerging markets “has come back much faster than we had forecast.”

CEO Tim Solso stated, “Our strength in large international markets provided significant benefits to the company, and we continue to see productivity improvements in our manufacturing operations.”

Overseas sales increased 69% in the third quarter, led by India, Latin America, South Pacific and the U.K., and now account for 63% of CMI’s consolidated revenues.  North American sales declined 3%.

In response to its third-quarter profit tripling from a year ago, CMI is raising its quarterly dividend by 50%, to $.265/share, a yield of 1.19%, AND raised its full-year financial EBIT guidance to 12.5% of sales on revenues of $13 billion.  CMI also bought back $79 million of its shares in Q3 2010, bringing total shares repurchased to $389 million under its current $500 million authorization.

Apparently, increasing revenue by 34%, tripling its profit, substantially raising the dividend, AND increasing their guidance, still wasn’t good enough for some analysts, who had pumped up expectations for CMI even further, (Hmm, do we  sense “irrational exuberance” in the wind?), and the stock got hammered, falling nearly 8%, from $94.49 to a low of $87.00 after reporting earnings.

Fortunately for contrarians and value investors, such hysteria creates opportunities. This big fall has inflated CMI’s call options and put options, which now offer double-digit yields for covered calls and cash secured puts:

CMI-Calls-Puts-2010-10-27

There are further details on these options trading strategies in our Covered Calls table and in our Cash Secured Puts table.

Company Profile:

Cummins designs, manufactures, distributes and services engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, Cummins serves customers in approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. Cummins reported net income of $428 million on sales of $10.8 billion in 2009. (Source: Cummins website)

If you’re looking for dividend paying stocks with strong international sales and earnings, Cummins is worth researching further.

Disclosure: Author is short puts of CMI.

Disclaimer: This article is written for informational purposes only.