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Dow Dividend Stocks – Top 5 Covered Calls

Friday, September 3rd, 2010

Maybe you want to buy blue chip Dow dividend stocks, but you don’t have much faith in price appreciation, given the market’s performance in 2010 thus far.  Selling covered calls often allows you to lock in a much higher yield than the current dividend yield of most dividend paying stocks.

We screened for the highest at the money covered call trades for the Dow 30, and came up with yields ranging from 8.54% to 10.17% for CAT, GE, BA, MSFT, and INTC. (Full names in table below.)  Pretty nice yields, especially when you consider that the annual yields for these 5 stocks range from just 2.18% to 3.20%.  Given that these option trades are all 6 to 8 month trades, their annualized yields are even higher, as you can see below:

DowCovCalls-9-1-10

(We’ve listed these trades this week in our Covered Calls Table, which gives you more specifics.)

Here’s a Performance table which lists each stock’s Year-to-Date, 2nd Quarter, and 1-Year price performance:

Dow5-Perf.2010thru9-1

This group’s Industrials far outperformed the Techs in a declining market YTD.  The overall Tech sector also lagged Industrials over the past year, with Industrials up 18.3% and Tech up only 9.8%.  Year-to-date, Tech is down -2.9%, and Industrials are up 3.1%.

As most value investors will tell you, lagging sectors can often be a good place to look for bargains.  The 2 Tech firms in this group, Intel, (INTC), and Microsoft, (MSFT) both have PEG ratios below 1, a statistic which is generally recognized as indicating that a stock may be undervalued.

Dow5PEGS-9-1-10

As with any strategy, there are pros and cons you should consider when selling covered calls.

Pros:

  1. Immediate Cash Inflow – Instead of waiting each quarter to collect dividends, when you sell a covered call, you’ll receive the call bid premium money into your account within 3 days from making the sale, often even the same day, depending upon your broker.  Of course, you’ll also keep collecting the dividends on the underlying shares.
  2. Superior Yield – As you can see from the table, these particular call yields are 3 to 4+ times the dividend yields.  This strategy allows you to transform a modest yield into a superior one.
  3. Downside Protection – The call premium $ you receive lowers your break-even cost, giving you more downside protection.
  4. You Know The Trading Range Before Making The Trade – This strategy tells you your exact upside profit potential, and your downside break-even, before you trade, as opposed to buying a stock and trying to determine what your upside potential will be.
  5. The Odds Are With You – It’s been proven that 3 out of 4 options expire worthless. When you’re an option seller, time is on your side, as opposed to the options buyer, who must not only guess the stock’s ultimate direction and approximate price, but must do it before expiration.

Cons:

  1. Limited Rally Participation – Once you sell a covered call, you’re obligated to deliver the underlying shares at your sold call’s strike price if they get assigned, (sold) away from you, no matter how high the stock goes. So, if you think there’s going to be a big rally, then you may not want to sell covered calls.
  2. Higher Entry Costs – You must own 100 shares of the underlying stock for every covered call that you sell.  Therefore, covered call sellers have a greater initial outlay than call options buyers.
  3. Assignment Risk – Selling covered calls against a stock puts you in jeopardy of having your shares sold away from you.  You have to weigh many factors, such as the dividend yield today, and potential dividend growth, and possible price appreciation.  However, if you think that the market is going to be range-bound, or bearish, then the covered call strategy will give you some added downside protection.

Deciding whether or not to sell covered call options comes down to many issues, such as, your risk profile and your market outlook.  If you want to capture some cash yields immediately, and not wait for the market to decide its direction, then this strategy may be right for you.

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

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

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3 Dividend Stocks With Low PEG Ratios and High Put Option Yields

Saturday, August 28th, 2010

Our latest screen for dividend paying stocks with low next-year PEG and 5-year PEG ratios, competitive management ratios, and conservative debt levels, has turned up 3 new dividend stocks with high put options yields: Autoliv (ALV), Gol Intelligent Airlines (GOL), and Illinois Tool Works (ILT).  We’ve added ITW to the Industrials section of our High Dividend Stocks by Sectors tables this week.

Here are Dividend Yield, Management, Debt, and Profit Margin metrics for these 3 firms:

ALV-Mgt.

(Note: Although GOL’s Debt/equity ratio is over 1, it’s much lower than its Airline peers’ average of 2.37.)

This Valuation table lists both Next-year PEG and 5-year PEG ratios:

ALV-PEG

Here are selected Cash-Secured Put Option Yields:

ALV-OPTIONS

We’ve added all 3 of these dividend stocks to our Cash Secured Puts table this week, where more details are listed. As you can see, the cash secured put option yields far outstrip the dividend yield for these stocks.

Company Profiles:

Autoliv (ALV): Sweden-based Autoliv enjoys a large share of the Automotive safety products market- airbags, seat belts, and safety electronics. This niche leads to more money because consumers demand safety equipment and automakers can charge higher prices for it. Autoliv has demonstrated technological leadership throughout its history: It introduced side-impact airbags, owns 7% of all automotive safety patents, and spends around 6% of sales on research and development.

Side-impact airbags are the fastest-growing product line in the market, and Autoliv has a 40% market share.

Expansion in the global auto market keeps demand high for Autoliv’s products. The global average of safety content per vehicle is $260, but this amount varies considerably in emerging markets. For example, China’s safety content per vehicle is just over $200 while India’s is only about $70. Consequently, Autoliv can expand in its core business significantly.  (Source: Morningstar)

Q2 2010 revenue for the three months ending July 17th was up 7.2%, slightly ahead of the average $1.41 billion estimate, yielding an EPS of $1.16, well above the average $1.03 estimate.

ALV raised its 2010 profit outlook to a range of $3.70 to $3.80/share, up from a prior forecast of $3.34 to $3.54/share. The company cited both improved performance as well as “significant” share repurchases as reasons for the improved outlook.  Analysts have been forecasting only $3.58/share in profit.

The firm purchased 3.4 million shares of its stock for $168 million during the quarter, about half the amount of shares repurchased in Q1.

Gol Intelligent Airlines (GOL): GOL and the airline industry should be huge beneficiaries of the massive infrastructure upgrade that is likely to occur during the coming decade, as the Brazilian government readies the country to host both the 2014 World Cup and the 2016 Summer Olympics.

Since its inception in 2001, Gol has increased its share of the Brazilian domestic market to slightly more than 40%. Introducing the low-cost business model—a la U.S.-based Southwest –has been the key to Gol’s success. Over the years, Gol has perfected this model and now possesses the lowest cost per available seat kilometer in the Brazilian industry. Although the firm continues to offer the same single-class service, it’s updating its fleet to an all-Boeing next-generation 737 model. The new fleet, which will be among the industry’s youngest, should continue to keep the firm’s operating expenses at bay. (Source: Morningstar)

Illinois Tool Works (ITW): A multi-billion dollar firm with over 100 years of history, ITW designs and manufactures fasteners and components, equipment and consumable systems and a variety of specialty products and equipment for customers around the world.  Several ITW brands are leaders in their markets.

ITW is well-positioned to grow its business in Asia. In countries such as China and India, the company has heavy exposure to infrastructure projects in its welding and construction units. In fact, ITW has already doubled the percentage of revenue from the Asia-Pacific region since the beginning of the century. In 2010’s first quarter, ITW’s business was up 37%.

ITW is forecasting third quarter 2010 diluted income per share from continuing operations to be in a range of $0.72 to $0.84. The 2010 third quarter forecast assumes a total revenue growth range of 9 percent to 13 percent. For full-year 2010, the Company is forecasting diluted income per share from continuing operations to be in a range of $2.82 to $3.08. The 2010 full-year forecast assumes a total revenue growth range of 11% to 13%.

Disclosure: Author is short GOL puts.

Disclaimer: This article is for informational purposes only.

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7 Dow Dividend Stocks With 10%-Plus Put Option Yields

Saturday, August 14th, 2010

If this week’s downturn is making you jumpy, maybe you ought to think about taking advantage of the pullback, by selling cash secured put options on some Dow dividend paying stocks. Although these stocks wouldn’t be considered high dividend stocks, they do currently have very attractive put option yields, ranging from just below 10% to over 12% for a 5-6 month trade.

The pullback has increased the volatility and the bid prices on these put options, which benefits option sellers, AND achieves a lower break-even price.  In fact, the put option bid yield far outstrips the dividend yield on all of these 7 Dow stocks:

COMPANY SYMBOL 8/12/10 STOCK PRICE PUT OPTION BID PUT YIELD ANNUALIZED PUT YIELD DIVIDEND YIELD EXPIRATION MONTH PUT STRIKE PRICE BREAK-EVEN PRICE
CATER-PILLAR CAT $67.59 $6.95 11.48% 25.87% 2.60% 11-Jan $67.50 $60.55
JP Morgan Chase JPM $37.84 $3.65 10.78% 24.29% 0.60% 11-Jan $37.50 $33.85
AMERICAN EXPRESS AXP $42.44 $4.00 10.53% 23.73% 1.70% 11-Jan $42.00 $38.00
BANK OF AMERICA BAC $13.16 $1.42 12.26% 23.55% 0.30% 11-Feb $13.00 $11.58
BOEING CO BA $64.95 $5.90 10.42% 20.02% 2.60% 11-Feb $62.50 $56.60
Hewlett Packard HPQ $40.25 $3.65 10.04% 19.29% 0.80% 11-Feb $40.00 $36.35
Home Depot Inc HD $27.60 $2.39 9.71% 18.65% 3.50% 11-Feb $27.00 $24.61

Although its put yield is just below 10%, Home Depot is on this list due to its 3.5% dividend yield, the highest in this group. We’ve also added Home Depot to our Cash Secured Put Table this week, as it has an attractive 18%-plus put yield. However, as you can see from the table above, most of these Dow 30 dividend stocks don’t have very attractive dividend yields, which is another reason for income investors to consider selling cash secured puts on them instead.

The benefits of this strategy are 4-fold:

  1. Immediate income – You receive the cash from put sales in your account within 3 days after the trade.
  2. Much higher yields – This varies, of course, but in times of increased volatility, put yields often outpace dividend yields.
  3. Lower breakeven – All of the above puts are “out of the money”, (put option strike price is below the stock price), which gives you a lower breakeven price, and more protection against a falling  share price than owning the stock outright would.
  4. Tax deferral – You don’t have to pay taxes on sold put options until they expire, or you close your position. Thus, if you hold any of the above puts until their Jan/Feb. 2011 expiration, you aren’t liable for taxes until the April 15, 2012 deadline for paying taxes on 2011 gains.  In fact, if you’re assigned the underlying stock, you don’t have to pay taxes on the put money that you received until you sell the underlying assigned stock, since the IRS states that your tax basis for the assigned stock is lowered by the money you received for selling the put options.  Quite a nice break for investors.

Caveats:

  1. Short term tax rate – Option profits are taxed at short term rates, even if they’re held for more than 12 months, as opposed to the qualified dividend tax rate, which is now 15%, but may rise in 2011.
  2. Selling vs. Buying options – Option sellers usually have to put up much more cash than option buyers, particularly when selling cash secured puts.  Brokerages generally will require a “cash reserve”, equal to 100% of the cost of the underlying shares.  If you have a 100% cash reserve requirement, your initial cash outlay for selling cash secured put options is similar to buying stocks, with one big difference: your cash outlay will be reduced by the premium $ you sell the options for, within 3 days. (Also, if you qualify for option level 3, your broker may reduce this reserve requirement to 25 -35%).

Disclosure: Author is short BAC puts.

Disclaimer: This article is written for informational purposes only.

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The 3 Dividend Aristocrats With The Lowest PEG Ratios

Friday, August 6th, 2010

Looking for dividend paying stocks with undervalued earnings growth?  We found the 3 Dividend Aristocrats stocks with the lowest PEG ratios: Cincinnati Financial, (CINF), Aflac, (AFL), and Chubb, (CB). CINF has the highest dividend yield of these 3 firms, currently paying 5.7%, and is listed in the Financials section of our High Dividend Stocks by Sector tables.

We compared these 3 stocks to the Dividend Aristocrats group, and to their Insurance industry peers.

Here’s the Dividend Aristocrats comparison:

Ticker

Price

P/E

PEG

P/S

P/B

P/Free Cash Flow

EPS growth this year

AVGS.

17.64

2.09

1.63

4.29

28.96

3.04%
CINF

$28.00

8.97

0.90

1.17

0.97

13.56

1.01%
AFL

$51.22

13.16

0.96

1.25

2.4

 13.35

21.86%
CB

$53.55

8.07

0.97

1.26

1.11

8.57

25.74%

Ticker

EPS growth next year

EPS growth next 5 years

Dividend Yield

Return on Equity

Total Debt/Equity

Operating Margin

Profit Margin
AVGS.

10.46%

8.92%

3.18%

19.41%

1.17

42.54%

10.61%

CINF

34.27%

10.00%

5.70%

11.51%

0.18

18.05%

13.09%

AFL

9.71%

13.74%

2.20%

22.36%

0.26

14.37%

9.55%

CB

5.44%

8.33%

2.80%

15.61%

0.25

23.78%

17.24%

CINF and CB both fare well vs. their Property & Casualty Insurance Industry peer group:

CINF CB INDUSTRY AVG.
Dividend Yield 5.70% 2.80% 2.58%
P/E 9.01 8.07 13.19
Price/Free Cash/Share 6.37 8.57 13.94
Total Debt/Equity .17 0.25 .24
PEG(Next 5 years) .90 .97 1.06
ROE (TTM) 11.51% 15.61% 11.37%
Operating Margin (TTM) 18.05% 23.78% 13.43%
EPS Growth Rate Next 5 Years 10.00% 8.33% 9.67%
Price/Book (MRQ) .95 1.11 1.71

(There’s additional info on CINF in our August “Stock of the Month” feature.)

Here’s the Accident & Health Insurance Industry Comparison for AFL:

AFL INDUSTRY AVG.
Dividend Yield 2.20% 1.42%
P/E 13.16 9.11
Price/Free Cash/Share 13.35 10.07
Total Debt/Equity 0.26 .21
PEG(Next 5 years) .96 .75
ROE (TTM) 22.36% 9.29%
Operating Margin (TTM) 14.37% 2.39%
EPS Growth Rate Next 5 Years 13.74% 12.23%
Price/Book (MRQ) 2.4 .99

When you compare AFL to its industry peer group, it begins to look pricey, in terms of its PEG ratio, since the Accident & Health Insurance industry has a low PEG of only .75.  AFL’s Price/Book and relative P/E are also higher than its peers.

Considering that the dividend yields for AFL and CB are both below 3%, investors may want to consider selling covered calls or cash secured put options in order to goose their returns on these 2 stocks and lower their break-even points.

We’ve added AFL to our Cash Secured Put Tables, as it currently has a 19.5%-plus annualized yield for selling its Feb. 2011 $50.00 put options.

Disclosure: Author is short puts of CINF.

Disclaimer: This article is written for informational purposes only

© 2010 DeMar Marketing        All rights reserved.

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2 Undervalued Chinese Dividend Stocks – Cninsure and Sinopec

Saturday, July 31st, 2010

We’re continuing our quest for international dividend stocks this week with 2 Chinese dividend paying stocks that all have low PEG/ high EPS growth forecasts, low debt, strong management metrics, and options trading available.  These 2 stocks trade in the US.

This group includes an oil & gas firm and an insurance company.  These two firms were added this week to our Covered Call Table and Cash Secured Puts Table.

Although CISG doesn’t have an impressive dividend yield, it does have very attractive option yields.  We added both CISG and SNP to our Covered Call Table this week.  Based on Friday’s prices, the annualized Jan. 2011 covered call yield for CISG is 23.99%, while Jan. 2011 SNP covered calls are yielding 17.5%.

We also added CISG and SNP to our Cash Secured Put Table, where CISG Jan 2011 put options are yielding over 24%, and SNP Jan 2011 puts are yielding over 12% annualized.

Dividend Schedules:

SNP pays semi-annually, in July (paid $1.61), and October

CISG paid an annual dividend of $.26 in June*

*Note: Many of the financial websites have incorrectly listed CISG as paying $1.04/year, with a 4.45% dividend yield.  The sites incorrectly multiplied CISG’s annual payment by 4.

Here are profiles for each firm, taken from their websites:

Cninsure (CISG): 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 offers 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 distribution and service network across China, with 57 affiliated insurance intermediary companies operating in the PRC, of which 50 are insurance agencies, three are insurance brokerages and four are insurance adjusting companies. With 45,039 sales professionals, 1,421 claims adjustors and 554 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. (Source: Cninsure website)

Sinopec (SNP): One of the largest integrated energy and chemical companies in China, with integrated upstream, midstream and downstream operations, strong oil & petrochemical core businesses and a complete marketing network. SNP was incorporated on 25th February, 2000, and is China’s largest producer and supplier of refined oil products (including gasoline, diesel and jet fuel, etc.) and major petrochemical products (including synthetic resin, synthetic fiber monomers and polymers, synthetic fiber, synthetic rubber, chemical fertilizer and petrochemical intermediates). It is also China’s second largest crude oil producer.  (Source: Sinopec website)

Here’s how these 2 firms stack up vs. S&P 500 Valuation averages:

P/E PEG P/B EPS GROWTH

THIS YEAR

 EPS GROWTH

NEXT YEAR

 EPS GROWTH

NEXT 5 YEARS
CISG 22.90 .76 3.50 55.04% 27.59% 29.97%
SNP 7.66 .26 1.20 145.13% 15.88% 29.70%
S&P 500 Averages 18.70 NA
3.40
NA NA NA

Here’s a comparison of Financial Metrics:

Dividend Yield ROA ROE ROI DEBT/EQUITY
CISG 1.13% 13.12% 16.70% 15.56% NO DEBT
SNP 3.30% 7.78% 17.56% 12.73% 0.39
S&P 500 Averages 2.49% 8.06% 18.62% 10.73% 0.75






CISG’s Q1 2010 revenues grew 31% and their net income rose 58% vs. last year same period. They’re expecting 35% earnings growth for Q2 2010. They expect the next three to five

years to be the “golden period for the development of China’s insurance and financial services

industries, in the wake of China’s widening economic recovery, the rapid accumulation of

personal wealth by Chinese people and the PRC government’s stimulus incentives on domestic

consumption.” (Source: CISG website)

SNP’s Q1 2010 net profit rose 40% vs. a year ago. They also raised $2.9 billion in China’s biggest bond offering to date this year.

Disclosure: No positions at this time. (Note: We removed TPI from this article, due to their discontinuing their dividends).

Disclaimer: This article is written for informational purposes only.

© 2010 DeMar Marketing.  All rights reserved.

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3 Undervalued Foreign High Dividend Stocks

Saturday, July 24th, 2010

If you’re looking for undervalued foreign dividend stocks with good growth prospects, our latest screen might interest you. We screened for attractive valuation metrics, such as, low Price/Free Cash Flow and PEG ratios, and high future EPS. We also screened for attractive ROE, ROI, ROA ratios, dividend stocks with a dividend yield above 5%, and low debt. This screen returned 2 Asian dividend paying stocks and 1 Latin American Telecom dividend stock, all of which are now in our High Dividend Stocks by Sector tables:

  • City Telecom HK  (CTEL): Provides integrated telecommunications services in Hong Kong via its own self-built fiber network. CTEL has a subsidiary, Hong Kong Broadband Network Limited (HKBN), that’s the fastest growing broadband service provider in Hong Kong. HKBN offers a diversified portfolio of innovative products that service over 1,027,000 subscriptions for broadband, local telephony and IP-TV services.  CTEL also has branch offices in Canada and Guangzhou. (Source: CTEL website)
  • Telecom Argentina (TEO): Based in Buenos Aires, TEO provides voice, data, internet, and wireless services to residential and corporate customers in Argentina.  For the three months ended 31 March 2010, TEO’s revenues increased 15% to P$3.25B. Net income increased 17% to P$411M. Revenues reflect an increase in revenue from Voice, Data & Internet segment and a rise in revenue from Mobile Telephony segment. Net income also reflects a decrease in amortization expenses, a fall in settlement charges, a decrease in bad debt expenses and higher gross profit margin.
  • Silicon Precision Industries (SPIL): Established in May 1984, SPIL has become one of the leading providers of comprehensive semiconductor assembly and test services. SPIL posted annual sales of US$1.81 billion in 2009 and currently employs around 17,000 people worldwide.  Products include advanced lead-frame and substrate based packages, which are widely used in, but not limited to, personal computers, communications, internet appliances, cellular phones, digital cameras, cable modems, personal digital assistants and LCD monitors.  Also based in Taiwan, with offices in China, Japan, Germany, and throughout the US. (Source: SPIL website)

All 3 firms have attractive Valuation metrics vs. the S&P500:

P/E PEG EPS Growth Next 5 Years Price/Free Cash Flow/Share Price/Book Price/Sales
SPIL 10.56 .53 20% 9.62 1.66 1.67
CTEL 11.16 .59 19% 5.70 2.25 1.82
TEO 9.41 .93 10% 7.89 2.40 1.11
S&P500 Avg 18.74 NA NA 20.40 3.35 2.27

Here are their Financial Ratios vs. the S&P500:

Dividend Yield ROE ROA ROI DEBT
SPIL 7.7% 16.14% 13.18% 15.84% NO DEBT
CTEL 5.47% 21.52% 13.03% 15.81% 0.13
TEO 4.98% 29.17% 14.30% 23.81% 0.15
S&P500 Avg 2.52% 18.68% 8.07% 10.01% 0.75

SPIL paid an annual dividend of $.401/share in July. Their most recent ex-dividend date was July 12, 2010.

CTEL pays semi-annual dividends in July and Dec-Jan.; their next ex-dividend date should be in early December. (They paid $0.413/share in Dec. 2009).

TEO paid an annual dividend of $.90 in May. Their most recent ex-date was April 30, 2010, which was their first dividend since 2001.

There are put options and call options available on CTEL and SPIL, but the yields on CTEL covered calls and cash secured puts are vastly superior.  Based upon today’s stock and option prices, CTEL currently sits atop our Covered Call Table, with an annualized static yield of over 45%.

CTEL also currently offers a very juicy cash secured put yield of over 32% annualized, currently the highest yield in our Cash Secured Put Table.

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only.

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5 Undervalued Basic Materials/Energy Dividend Stocks

Friday, July 16th, 2010

Are you looking for bargain basement dividend paying stocks with good earnings growth forecasts? Here’s a good place to start your search:

Our Stock Market Data page shows the Energy sector is off 8.65%, while the Basic Materials sector is down -8.43% year-to-date.  Additionally, our Market Cap/Style table shows that Large Cap Growth has taken the  biggest hit, dropping -3.92% YTD.  These two sectors have lagged way behind other industry sectors over the past year, as investors have  questioned the strength of the global recovery, and future demand.  If you believe that there will be steady or increased future demand for oil, natural gas, copper and the like, then you may want to research these 5 dividend stocks further.

We screened for low PEG ratios, strong next-year and next 5-year EPS growth figures, low Debt/Equity ratios, 3%-plus dividend yields.

The 5 stocks are: China Petroleum & Chemical (SNP), Chevron (CVX), Southern Copper (SCCO), Conoco Phillips, and Ensco (ESV):

Ticker

7/16/10 Price

Dividend Yield

P/E

PEG

EPS growth next year

EPS growth next 5 years

Total Debt/Equity

SNP

$76.96

3.35%

7.52

0.25

15.88%

29.70%

0.58

CVX

$72.07

3.94%

11.08

0.57

13.56%

19.60%

0.11

SCCO

$29.31

3.89%

20.54

0.71

38.29%

29.11%

0.33

COP

$52.09

4.16%

13.87

0.77

20.72%

18.05%

0.46

ESV

$40.63

3.36%

8.29

0.79

15.45%

10.50%

0.05

COP features the highest dividend yield of this group, currently at 4.16%, and is also in our High Dividend Stocks by sector tables.

Here are management and performance metrics, earnings dates, and volatility:

Ticker

ROE

ROA

ROI

Perform-ance (Year)

Perform-ance (YTD)

Earnings Date

Volatility (Month)

SNP

17.56%

7.78%

12.73%

-0.92%

-8.87%

4/29

1.64%

CVX

14.45%

8.09%

9.68%

17.45%

-3.32%

7/30

1.91%

SCCO

34.35%

21.83%

23.99%

41.99%

-6.70%

7/22

3.61%

COP

9.69%

3.88%

4.64%

32.22%

5.64%

7/28

2.34%

ESV

13.36%

11.11%

11.84%

10.88%

5.46%

7/22

3.56%

There are also puts and call options available on these stocks, for investors who want to hedge their investment via covered calls, or selling cash secured puts. In light of the upcoming earnings reports for 4 of these stocks, bid premiums may rise near earnings dates. Ensco (ESV), and Southern Copper (SCCO) have the highest % option yields, in keeping with their higher volatility.  In addition, Ensco, being a driller, is a rather contrarian pick right now, which also accounts for the high cash secured put bid premiums, (over 12%), for ESV in our Put Selling Table.  SCCO has even higher put options bid premiums, currently over 14%.

Disclosure: Author owns CVX shares.

Disclaimer: This article is written for informational purposes only.

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Cato Corp., (CATO), An Apparel Dividend Stock With Fashionable Option Yields

Friday, July 9th, 2010

Cato Corp., is a fashion specialty retailer which is listed in the Consumer Discretionary section of our High Dividend Stocks by Sector tables. They target value and fashion-oriented females, and operate over 1200 women’s fashion stores, primarily in the southeastern U.S. They just reported that same-store sales are up 5% year-to-date, and that June sales increased 1%.  In their last fiscal quarter, ending 5/01/10, their revenue rose 8.9%, and their net income jumped 44%.

This is a conservatively managed firm, with zero debt, and it fares well in our Industry Comparison Table:

CATO Apparel Industry
P/E 11.81 16.24
Price/Free Cash Flow 11.27 19.98
Price/Book 2.11 2.88
Debt/Equity NO DEBT 28.47%
ROE (TTM) 18.09% 3.66%
ROI (TTM) 17.14% 2.26%
Dividend Yield 3.33% 1.81%

There are attractive covered calls and cash secured put options trades available for CATO.

These two covered call trades yield from 14.7% up to a potential 34.9% annualized:

(July 8. 22, 2010 closing price) Dividends Pre-expiration Expi-ration month/Call Strike Price Call Bid Premium Total Static Yield (Annualized) Potential Assigned Yield (Ann’d) Total Potential Yield (Ann’d)
$22.56 $.37 Jan.2011/$22.50 $2.25 21.7% -.06% 21.01%
$.37 Jan.2011/$25.00 $1.40 14.84% 20.2% 35.19%

For more conservative investors, there’s also an attractive put option trade, with a 22%-plus yield and a lower break-even price, listed in our Put Selling Table.

CATO pays an $.185/share quarterly dividend, with their next ex-dividend date coming approximately Sept. 10th.  They have a 35% dividend payout ratio.

Disclosure: No shares held at this time

Disclaimer: This article is written for informational purposes only.

© 2010 DeMar Marketing. All rights reserved.

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5 Defensive Utility Dividend Stocks

Friday, July 2nd, 2010

With the S&P down 12% and the Dow off nearly 10% in the 2nd quarter, you might well be thinking about defensive dividend stocks.  Comparing the various Industry Sectors over the 2nd quarter, the Utility sector has held up the best, dropping approx. 5.2%, vs. Basic Materials’ 17.2% loss.

We screened the Utility section of our High Dividend Stocks by Sector tables for dividend paying stocks with above-average ROE, ROI, ROA figures, and below-average Debt/Equity and P/E’s.

This search yielded 5 stocks, 4 from the US, and 1 from Brazil:

  • CPFL Energia (CPL) – A Brazilian electric utility based in Sao Paulo, that serves 6.6 million residential, industrial and commercial customers, mainly in the Sao Paulo and Rio Grande do Sul areas.  In 2009, they expanded into thermoelectric, biomass, and wind generation projects.  CPL has benefitted from the rapidly growing Brazilian economy. They pay 2 semi-annual dividends, with ex-dates in March and August.
  • Excelon Corp. (EXC) – A hybrid nuclear/natural gas utility, with customers in southeastern Pa. And northern Illinois. They’re the largest U.S. nuclear producer. (For more details, see our previous article about EXC.)  They pay $.525/share quarterly, with their next ex-dividend date coming up in August.
  • DPL Inc. (DPL) – DPL’s subsidiary, the Dayton Power & Light Co., is a regional electric utility that services all customer segments in west central Ohio.  They pay $.303/share quarterly, with their next ex-dividend date coming up in August.
  • Energy Inc. (EGAS) – A natural gas utility that distributes and sells to residential, commercial, and industrial customers in Maine, N. Carolina, Wyoming and Montana.   They pay $.045/share monthly.
  • AGL Resources (AGL) – An energy services holding company, that distributes natural gas in 6 eastern US states. AGL also owns natgas pipelines and sells telecom conduit and fiber optic cable.  They pay $.44/share quarterly, with their next ex-dividend date coming up in August.

Here’s how these 5 utility stocks stacked up vs. Utility Sector Averages:

CPL EXC DPL EGAS AGL Utility Sector Avgs.
DIVIDEND YIELD 6.39% 5.52% 5.05% 4.97% 4.93% 3.43%
ROE

25.88%

21.55%

21.53%

19.64%

13.28%

 11.65%
ROI

11.96%

6.07%

7.07%

13.31%

5.28%

 4.36%
ROA

8.34%

5.51%

6.34%

9.34%

3.99%

 3.87%
Debt/Equity

1.34

.97

1.14

 .77 1.16 1.43
OPERATING MARGIN

17.12%

28.72%

26.29%

15.82%

21.46%

 18.74%
P/E 13.80 9.17 11.98 6.03 11.67 17.27

There are covered call and put options available on EXC, DPL, and AGL.  With the market decline, put options are currently offering much higher bid premiums than call options. Many investors sell cash-secured puts, as an alternative to buying a stock outright, in order to decrease their risk, by achieving a lower break-even point.

Of these 3 stocks, Excelon currently has the most attractive yields for selling cash-secured puts, and is listed in our Covered Put table.

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only.

© 2010 DeMar Marketing.  All rights reserved.

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3 High Dividend Stocks with Low PEG Ratios & Good Growth Prospects

Saturday, June 26th, 2010

If you’re looking for dividend paying stocks with good future EPS growth prospects and low P/E to EPS growth valuations, (PEG), here are 3 dividend stocks from our High Dividend Stocks by Sector tables:

United Online, (UNTD), and Himax Technologies, (HIMX), are both ranked high in our Technology High Dividend Stocks table, and Collectors Universe, (CLCT), has the highest current dividend yield in our Consumer Discretionary Dividend table.  CLCT also recently raised their dividend from $.25/share per quarter to $.30/share.

As you’ll see in the table below, all 3 of these stocks have PEG ratios well below 1, current dividend yields from 6.64% to over 9%, and are expected to have EPS growth of at least 15% over the next 5 years:

Ticker

Price

Dividend Yield

P/E

PEG

EPS growth next 5 years

UNTD

$6.02

6.64%

8.6

0.57

15.00%

HIMX

$3.02

8.28%

9.44

0.63

15.00%

CLCT

$13.10

9.16%

14.24

0.71

20.00%

Their valuation and mgt. effectiveness ratios vary widely, and their Debt/Equity ratios range from debt-free for 2 of the firms, to .72 for United Online:

ROE

ROI

Total Debt/Equity

Profit Margin

P/B

P/Free Cash per Share

UNTD

15.24%

7.97%

0.72

6.57%

1.23

8.58

HIMX

9.96%

9.03%

0

5.48%

1.26

8.01

CLCT

33.84%

29.10%

0

18.65%

5.57

3.30

There are call and put options available for UNTD and HIMX, but none for CLCT.

For investors looking for a lower entry point via selling cash-secured put options, Himax has the most attractive put-selling yield.  Selling cash secured puts currently offers a much better return than selling covered calls on either of these stocks.  Both of these trades are listed in our Covered Put Table.

Put Strike Price/Expiration Month Put Bid Premium Nominal Yield * Annualized Yield *
HIMX $2.50/Dec. 2010 $.20 8.00% 16.98%
UNTD $5.00/Dec. 2010 $.35 7.00% 14.85%

* Yields based upon 100% cash reserve.

Disclosure: No positions in these stocks at this time.

Disclaimer: This article is written for informational purposes only.

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