Monthly Archives: February 2011

3 Major Oil Dividend Stocks With High Options Yields

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By Robert Hauver

Looking for ways to play $100+ per barrel oil?  The Energy Sector has many dividend paying stocks, in fact, many of them are listed in the Energy section of our High Dividend Stocks By Sector Tables. Although most of the Major Integrated Oil stocks don’t have such high dividend yields, there are some that can still give you double digit high options yields, via selling covered call options and cash secured puts. We found 3 Oil dividend stocks with attractive mgt. metrics, good margins, and good growth prospects for 2011:

Conoco Phillips, (COP), PetroChina, (PTR), and, the big kahuna, Exxon Mobil, (XOM). Here’s how these 3 firms compare vs. their peers in the Oil Majors group:

ROE-XOM-COP-PTR2011-02-24

Conoco has the lowest margins of this group, due to its heavier exposure to refining, a lower margin part of the oil biz.  However, Conoco has been divesting poor-performing assets, and is moving to concentrate more on exploration and production, which should improve margins.  Two other factors favor COP’s future earnings: 1. COP has a higher proportion of natural gas than its peers and should benefit from environmental concerns that favor natural gas. 2.  COP also has significant ownership in pipeline and other transportation assets, which offer steady income that is not as tied to variations in commodity prices. (Source: Morningstar)

PetroChina, China’s largest oil and gas company, looks to secure future domestic and international supply to feed a nation hungry for energy. Refining operations lost money over the past few years as the price of crude oil soared while the price for refined products in China remained stagnant, due to government controls. Now, the Chinese government will revise product prices if oil prices fluctuate over a given period of time. The new system should improve refining margins. (Source: Morningstar)

ExxonMobil sets itself apart among the other supermajors as a superior capital allocator and operator. Resource nationalism is becoming an increasingly greater challenge to international oil companies’ (IOC) ability to grow production. Countries rich in oil and gas reserves are increasingly picky when choosing partners, such as Exxon, to work with their national oil companies (NOC) to explore for, produce, and transport to market their oil and gas reserves. With its deep pockets, expertise, and integrated operations, Exxon can tackle nearly any mega-project regardless of scale, location, or operational difficulty. (Source: Morningstar)  In addition, Exxon’s purchase of XTO positions it as a major player in the growing utilization of natural gas, which Exxon predicts will overtake coal as the 2nd most utilized fuel source in the coming years.

Looking ahead to 2011 earnings, Conoco and PetroChina appear undervalued:

XOM-COP-PTR-PEG-2011-02-24

While XOM’s 2011 PEG is over 1, it generally commands a premium to its peers in the market, hence the higher P/E and PEG’s.

Here’s how you could lock in high option yields now, by selling Covered Call options:

XOM-COP-PTR-CALLS-2011-02-24

Note how the above call options are approx. 3 times the price of the dividends. Another positive to the Covered Call and Cash Secured Put options strategies is that you receive the option premium $ within 3 days of selling calls and puts, as opposed to waiting for each quarterly dividend. The flip side, is that your participation in possible future price gains is limited to your potential assigned yield – (the difference between the strike price and the stock’s cost basis).  Our Covered Calls Table can give you more info about these and other Covered Call options trades.

Conversely, if the current high market prices make you nervous, you could also earn high options yields by selling Cash Secured Puts for any of these stocks, thereby receiving much more $ from their put options, than their current dividend yield will earn you. You’d also have a lower break-even price:

XOM-COP-PTR-PUTS2011-02-24

There’s more info about these and other put options trades in our Cash Secured Puts Table.  (Note: Put option sellers don’t receive dividends, we listed the dividends for comparison only .)

Disclosure: Author is long XOM shares, and may be short COP puts in the near future.

Disclaimer: This article is written for informational purposes only.

3 Dow Dividend Stocks With High Options Yields

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By Robert Hauver

Looking for blue chip dividend paying stocks with a decent dividend yield? As the rally continues, and share prices climb, many dividend yields aren’t keeping pace, posing an ongoing challenge for income investors.  If you want to earn higher yields over the next few months, here are 3 Dow dividend stocks that all have double-digit high options yields on Covered Calls and Cash Secured Puts:

American Express (AXP). Intel (INTC), and JP Morgan Chase (JPM).

AXP-INTC-JP-ROE-2011-02-17

Not surprisingly, JP Morgan has the weakest mgt. metrics, due to hangover from the financial crisis, but it does have a higher Profit Margin than American Express. However, JPM has appreciated the most year-to-date, up 13.15%.  JPM has also talked about raising its dividend in the future, as conditions approve. Currently, Intel has the best dividend yield of these 3 stocks, and is above the Dow 30 2.71% average.  We’ve added INTC to the Tech section of our High Dividend Stocks by Sector Tables.

Intel’s higher dividend yield hasn’t translated into higher share performance yet in 2011, as it’s up only 4.32%, due to analysts’ concerns over slower growth in 2011, after 2010′s record earnings. Thus far, JPM has the lowest 2011 PEG ratio, but Intel may very well keep surprising to the upside, if Tech spending continues to pick up in 2011:

AXP-INTC-JP-PEG-2011-02-17

You’d think that American Express would be poised to capitalize on rising consumer spending, but pending legislation on credit card fees is holding back EPS growth forecasts. However, the Fed just weighed in on possible fallout from this bill, so, things may change: “The Dodd-Frank Act enacted in July requires the Fed to establish the cap on so-called interchange fees charged to merchants. The central bank proposed in December to set the limit at 12 cents per transaction, setting off a lobbying battle between retailers who favor the rule and lenders, who stand to lose more than $12 billion in annual revenue if the proposal as written becomes final” (Reuters)

Here’s how Covered Calls stack up vs. the dividends for these stocks:

AXP-INTC-JP-CALLS-2011-02-17

As none of these stocks boasts a huge dividend yield, their call options yields easily outstrip their dividends by at least 6 to 1. These are all relatively short-term 4- to 5-month trades, expiring in June and July. There are more details about these and other trades in our Covered Call Table.

For investors looking for a lower entry point, selling Cash Secured Puts also offers double-digit annualized yields:

AXP-INTC-JP-PUTS-2011-02-17

Intel has the least volatility of this group, at under 14 over the past few months, hence its put options yields trail AXP and JPM, both of which have 20-plus volatility. You’ll find more details about these and other options trades in our Cash Secured Puts Table.

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

Disclaimer: This article is written for informational purposes only.

Calling Down Under-2 Foreign High Dividend Stocks In The Telecoms Sector

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By Robert Hauver

The Telecoms sector has stood out as one of the few sectors that maintained its high dividend yields through the financial crisis.  Indeed, both wireless and land-line dividend paying stocks in this sector have continued to reward investors with high dividend payouts, even as other sectors, (notably Financials), had to eliminate or slash their payouts:

SP-2010-SectorDivAvgs

(Data Source: Standard & Poor’s)

As the above table illustrates, the Financial sector slashed its dividends over 68%, and several sectors’ current dividend yields fall below the current S&P avg. dividend yield of 1.81%.  An interesting development, (hopefully an ongoing trend), is that the Tech and Energy sectors actually increased their avg. dividend payouts by over 32% and 42% respectively.

If you follow the logic of diversifying your portfolio overseas, but still maintaining an attractive dividend yield, here are 2 foreign Telecoms that are listed in our High Dividend Stocks by Sector Tables, that you may want to research further:

New Zealand telecom (NZT): NZT is the dominant firm in the New Zealand market, and is made up of five customer-facing businesses: Chorus; Telecom Wholesale & International; Telecom Retail; Gen-i and AAPT..

NZT pays dividends quarterly, and their next ex-dividend date is Feb. 23rd, and the payment date is March 18th, with a payout of 13.31 cents/ADS. (One ADS American Depository Share equals 5 ordinary New Zealand shares.

“For 2011 NZ Telecom will target a dividend payout ratio of approximately 90% of adjusted net earnings. Subject to there being no adverse change in operating outlook, a dividend of 3.5 cents per share, (5 x this for ADS shares), will be paid for the first three quarters and the dividend for the fourth quarter will be set to reflect the full year targeted payout ratio.”   Reduced tax rates (often 15%) generally apply to non-resident shareholders who are entitled to the benefit of an international tax treaty (such as US, Australian and UK shareholders with less than 10% holdings in Telecom – for which NRWT is deducted at 15%). NZT will also pay a supplementary dividend of 0.6176 cps to those shareholders who are not tax resident in New Zealand.” (Source: NZT website)

Telstra (TLSYY): Australia’s dominant market player, and offers a full range of services and compete in all telecommunications markets throughout Australia, providing more than 8.6 million Australian fixed line and 10.5 million mobile services, including 8.2 million 3G services.

Telstra also owns 50% of FOXTEL, whose international businesses include:

  • The Telstra International global networks and managed services business that has more than 1,100 Points-of-Presence throughout Australia, Asia Pacific, Europe and the U.S.
  • CSL– Hong Kong’s leading mobile network operator.
  • China search and advertising businesses, including the Sequal businesses – Pcpop, IT168, Autohome and CHE 168, the Octave businesses – Sharp Point and ChinaM and LMobile and China Bar.
  • 50% cable joint venture with PCCW in REACH – a premier provider of international voice and satellite services in Asia.

Telstra will benefit from the newly Government-approved plan to build a nationwide broadband infrastructure.

Here’s an excerpt from the Wall St. Journal’s Feb. 10, 2011 interview with Jason Brady, CFA, Managing Director for Thornburg Investment Management:

TWST: What are some of your major holdings right now in each fund and why do they hold those positions?

Mr. Brady: Let’s start with the Income Builder. Our bigger holdings are dividend-paying stocks. One of the biggest overweights on stocks we have from the sector perspective is global telecom.

Our largest holding right now is Telstra (TLS.AX,TLSYY), which is basically the incumbent telecom provider of Australia and is not tremendously expensive. Using Bloomberg numbers, the forward p/e is about 10. The gross yield before taxes is about 14%. Obviously, there are some taxes and other fees there, but there is a significant income component, and we believe that this company has stable cash flows and earning power. If you are getting a 10%-plus income stream and a 3% to 5% earnings growth, that is a nice holding. It is not a tremendously complex business. That’s a pretty attractive holding for us. It’s got some growth, it’s certainly got income, and that combination and the parameters of the company make it one of our largest holdings. (Source: Wall St. Journal)

Although their interim 6-month earnings ending 12/31/10 declined, Telstra picked up almost 1 million additional customers in the past 6 months, (around half of them for mobile services), their highest subscription rate in the past 10 years.

Telstra pays dividends twice a year, in February and August. Their next ex-date is approx. Feb. 18th, with a payout date of March 25th., and an approx. dividend payout of $.70/ADS, depending upon currency exchange.  (One Telstra ADS = 5 Australian ordinary shares.)

Telstra trades in the U.S. on the Pinksheets, and New Zealand Telecom ADS’s also trade in the U.S., on the NYSE.

Here are selected metrics for both firms:

NZT-roe-2011-02-11

In addition to offering higher dividend yields than industry avgs., both firms appear to be conservatively leveraged, and have high gross margins.

Valuations:

NZT-PEG-2011-02-11

Disclosure: Author is long shares of NZT and TLSYY.

Disclaimer: This article is written for informational purposes only.

Conoco Phillips – A Basic Materials Dividend Stock With Earnings Growth

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By Robert Hauver

Finding undervalued dividend paying stocks in this ongoing rally can be very challenging, to say the least. If you’re looking for Basic Materials dividend stocks with good earnings growth, Conoco Phillips is worth a look.

They just reported Q4 and full year 2010 earnings, and they blew away last year’s earnings and sales – Q4 sales up 23%, Q4 adjusted net income up 10%, Full year 2010 sales up 27%, and Full Year adjusted net income up 80%.

Company Profile: Conoco Phillips is the 3rd largest integrated U.S. oil firm, by market cap and reserves.

COP operates in 6 segments:

Exploration and production, Refining and marketing, Midstream, A 20% stake in the Russian oil company Lukoil, Chemicals, and Emerging businesses.

As of end of the third quarter of 2010, COP had received about $6.3 billion from the sale of its Lukoil shares, and expects to sell its remaining shares of Lukoil by the end of 2011.

COP vs. its Oil Majors Industry Peer Group:

COP-ROE-2011-02-01

As you can see, COP’s mgt. metrics are mostly similar to industry averages.  However, Conoco paid down $3 billion of debt in 2010, and now enjoys a better Debt/Equity than its peers’ avg.

COP’s earnings growth figures surpass its peers avgs.:

COP-PEG-2011-02-01

You can increase your yield on Conoco by selling Covered Calls:

COP-CALL-2011-02-01

This covered call trade’s option payout is over twice that of the dividend yield.

There are more details about this and other call options trades in our Covered Call Table.

If you want to play it more conservatively, you might consider selling Cash Secured Puts:

COP-PUT-2011-02-01

This put options trade gives you a lower break-even point than the covered call trade, and a higher yield.

There are more details about this and other put options trades in our Cash Secured Puts Table.

Conoco Phillips increased its quarterly dividend in 2010, from $.50 to $.55/share, and its next ex-dividend date should be approx. February 18, 2011.

Disclosure: No positions

Disclaimer: This article is written for informational purposes only.