Posts Tagged ‘options’

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3 Large Cap Dividend Stocks With Attractive Options Yields And Low PEG Ratios

Saturday, August 21st, 2010

We screened for large cap dividend stocks with low PEG ratios, 3%-plus dividend yields, and attractive options yields for both covered calls and cash secured put options. We’ve added them this week to our Covered Calls table and to our Cash Secured Puts table.  These are short-term trades, (5-6 months), that should capitalize on the current low PEG ratios for next year for these 3 firms.

Conoco Philips (COP): A major integrated Oil & Gas co., (Basic Materials sector), COP’s revenues increased 42% to $95.89B for the six months ended 30 June 2010. Net income totaled $6.3B, up from $1.7B for the same period. (These figures include the sale of Syncrude).  ConocoPhillips intends to sell the remaining 60% of its entire stake in Lukoil for $3.44 billion in 2011.  (Source: Morningstar)

Eaton Corp. (ETN): An Industrial & Electrical Equipment firm, (Industrial Goods sector).  Eaton Corporation’s revenues increased 13% to $6.48B for the six months ended 30 June 2010, and net income totaled $381M vs. a loss $21M year-over-year. Revenues reflect a rise in the income from Truck segment, the Automotive segment,the international Electrical segment, and higher sales from their Hydraulics segment.  International sales have grown from 20% of the total in 2000 to 55% in 2009 (including 22% to developing markets, up from 8%).  Eaton now serves a wide swath of industrial markets, including aerospace, energy, agriculture, and construction. (Source: Morningstar)

McGraw Hill (MHP): A major Publisher, (Services sector), MHP was founded in 1888, and is a member of the S&P Dividend Aristocrats, an elite group of firms who’ve increased their dividend every year for a minimum of the past 25 years.  MHP’s revenues increased 2% to $2.66B for the six months ended 30 June 2010, and net income increased 30% to $294.4M. Revenues reflect an increase in income from Financial Services and higher income from McGraw-Hill education segment.  McGraw-Hill’s branded information services include the likes of Standard & Poor’s, J.D. Power & Associates, Platts, Aviation Week, and McGraw-Hill Education.   (Source: Morningstar)

All 3 of these dividend paying stocks have options trading strategies available.  Considering the current wave of uncertain expectations descending upon the economy and the market, income investors looking for near-term income may want to consider selling covered calls or cash secured puts, both of which offer higher yields than these firms’ dividends.

(Note: Option yields below are annualized for ease of varying time-length comparison):

COP-ETN-MHP-Options

Here are the valuation comparisons:

COP-ETN-MHPVal2

Here are key efficiency and financial ratios:

COP-ETN-MHP-Effy

Conoco Philips is currently also listed in the Energy section our

High Dividend Stocks By Sector Tables.

Disclosure: No positions at this time.

Disclaimer: This article is for informational purposes only.

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Posted in Dividend Stocks, Option Trading | 2 Comments »

New Zealand Telecom, (NZT), Maintains Its High Dividend Yield for 2010

Friday, May 7th, 2010

New Zealand Telecom has one of the highest dividend yields in the Telecom Stocks section of our High Dividend Stocks by Sector Tables, with a 9.54% dividend yield currently. However, they just declared a quarterly dividend for Q3 Fiscal 2010 of $.2122/ADS, which works out to almost 85 cents annually.  NZT closed Friday, May 7th, at $7.44/ADS, which would make their forward dividend yield approx. 11.29%.

The ex-dividend date is May 18th, and the payment date is June 11th. (One ADS, American Depository Share, equals 5 Ordinary New Zealand shares, and 1 New Zealand $ equals 0.714850 US $ ).  (NZT pays dividends quarterly.)

NZT is targeting a 90% dividend payout policy, and reiterated in today’s earning release that they intend to pay the equivalent of $.8488 per ADS in dividends in 2010.  They see 2010 earnings as being -1% below 2009, which would equal about $.89/ADS, which would put their forward dividend payout ratio at 96%.  A 90% dividend payout on $.89 would equal $.80/ADS, which is still a hefty 10.77% dividend yield.

NZT reported Q3 fiscal earnings results today that were generally in line with their previous guidance, and maintained their full year guidance.  Their market share of fixed broadband was steady at 57%, and they had 7% mobile revenue growth.

Concerning valuation, NZT has one of the lowest P/E’s in the Foreign Telecom group, and its stock price is up less than 1% for the past 12 months.  If you’re looking for foreign dividend paying stocks with high dividend yields, you may want to consider NZT.  (There are no options available for NZT).

Disclosure: Author is long shares of NZT.

Disclaimer: This article is written for informational purposes only.

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Microchip Technology, (MCHP) – A Tech Dividend Stock With High Option Yields

Saturday, May 1st, 2010

Microchip Technology, (MCHP), is a dividend paying stock listed in the Tech section of our High Dividend Stocks by Sector tables.  MCHP’s current dividend yield is 4.66%. MCHP is a leading provider of microcontroller and analog semiconductors, and is based in Arizona.  The firm recently upped its earnings guidance for Q4 fiscal 2010, from $.34/share to $.42, (non-GAAP), citing stronger bookings and sales.  They also expect sales to be up 8%.  MCHP reports earnings this coming week, on May 5th.

MCHP recently bought Silicon Storage Technology, whose SuperFlash technology is used widely in advanced microcontrollers.  MCHP will now be able to embed this technology in its microcontrollers, which is their core business.

Although its debt load is slightly higher than its peers, MCHP’s balance sheet is solid, and this firm fares well overall in our Industry Comparison table:

MCHP Semiconductor Industry
Current Ratio 7.79 3.72
Debt/Equity 22.85% 19.30%
Profit Margin 19.47 10.60
Price/Free Cash/Share 10.85 25.15
ROE 13.11 10.12
ROI 36.46 9.10
PE 33.19 28.85

MCHP’s current PE looks a bit rich vs. its peers.  Investors looking to lower their breakeven costs could do so by selling covered calls on MCHP.  Our Covered Calls Table currently lists the October $30.00 call option, (QMT\10J16\30.0), for MCHP as having a 16%-plus annualized static yield, and an assigned annualized yield of nearly 23%.  Your breakeven cost on this options trade would be $26.98, Friday’s closing price of $29.21, minus the $2.23 in call and dividend money from the trade.

An additional strategy for lowering your breakeven cost would be to sell MCHP put options. The October $30.00 put option listed for MCHP in our Put Selling table is currently worth a $3.00 bid, which equals a 10% nominal yield, or 22%-plus annualized. Your breakeven would be $27.00 on this options trade.  (These percentages are based upon 100% cash reserve).

Disclosure: No positions in MCHP at this time.

Disclaimer: This article is written for informational purposes only.

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One Beacon Insurance (OB) -A High Dividend Insurance Stock With Juicy Options Yields

Saturday, March 6th, 2010

One Beacon Insurance, (OB), is a recent addition to the Financials section of our High Dividend Stocks by Sector tables.

This Bermuda-based, dividend paying stock traces its roots all the way back to 1831, as the Potomac Fire Insurance Co.

OB recently returned to profitability in Q4 2009, posting  earnings of  $.76/share, vs. a -$1.81/share loss in Q4 2008.

They also were quite profitable for full year 2009, with earnings of $3.60/share, vs. a -$3.99/share loss in 2008.

The company also had 31% growth in book value in 2009, and a slightly improved combined ratio of 94%.

(Combined ratio measures an insurance firm’s incurred losses and expenses, divided by its earned premiums, and doesn’t include investment income.)

OB is a company is transitioning into a Specialty insurance firm, having recently sold its Commercial Lines and Personal Lines businesses, a move they say will significantly lessen their catastrophe exposure, and add greater profits, in addition to freeing up significant capital.

Withstanding its higher debt load, One Beacon has many favorable metrics in our Industry Comparison Chart:

One Beacon (OB) Insurance Industry Peer Group
Dividend Yield 5.56% 2.57%
P/E 4.2 12.81
PEG .84 1.49
ROE 26.47% 7.95%
ROA 4.45% 3.41%
5-Year EPS Growth 17.58% 6.33%
Debt/Equity .43 .25

OB closed at $15.12 on Friday, and its current dividend yield is 5.56%.  Last week they declared a $.21 quarterly dividend,payable on March 31, to shareholders of record as of March 17th.  In addition to this attractive dividend, OB has some juicy call and put options, for investors interested in trading options, i.e., selling covered calls, or selling cash-secured put options:

Price March 5, 2010 Dividend Pre-Expiration Dividend Yield (Annual’d) August $15 Call Bid Price Call Yield (Annual’d) Total Static Yield (Annual’d) Total Assigned Yield  (Annual’d)
$15.12 $.42 6.0% $1.20 17.2% 23.2% 21.5%
Aug. $15 Put Bid Price Put Yield (Annual’d) Based on 100% Cash Reserve Breakeven
$15.12 $1.50 21.7% $13.62

The put option yield is over 3.5 times the dividend yield at present.

Disclosure: No positions yet.

Disclaimer: This article was written for informational purposes only.

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How To Turn Apple, (AAPL), Into An Income Stock

Saturday, February 20th, 2010

Devotees of dividend paying stocks may find it strange to hear Apple’s name mentioned in an article about income stocks, but there is a straightforward, conservative way to earn income quickly from this well-run tech stock.

Even though AAPL doesn’t pay a dividend, income investors could earn just below 11% by selling put options on it. (See below for details).

Apple looks good in many metrics when compared to the Computer Hardware industry:

Apple Computer Hardware Industry
ROE 31.90 27.61
ROA 28.96 22.07
ROI 19.35 13.66
Income/Employee $1.36 mln $ .96 mln
Profit Margin 20.04% 13.47%
Debt/Equity NO DEBT 20.10%

However, it does command a valuation premium to its peers:

But AAPL doesn’t seem so pricy when you compare its earnings to its closest peer in the Personal Computer Industry…  Click here…to learn more

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2 Basic Materials High Dividend Stocks WIth Strong Earnings

Saturday, February 13th, 2010

Penn Virginia Resources Partners LP, (PVR), and its general partner, (PVG), both reported strong Q$ 2009 earnings growth this week. Both PVR and PVG are among the high dividend paying stocks listed in the Basic Materials section of our High Dividend Stocks by Sector tables.

PVR has 2 business segments: Natural Gas Midstream, which processes and gathers natural gas, and Coal & Natural Resource Mgt., which manages coal-related resources, infrastructure, and timber.

PVR reported the following ‘09 Quarter-over- ‘08 Quarter results:

2009 Q4 2008 Q4
Net Income $.33/unit $.19/unit
Adjusted Net Income $.49/unit $.28/unit
Distributable Cash Flow $48.3 million $35 million
Midstream Gross Margin $1.23/Mcf $0.68/Mcf

CEO James Dearlove attributed the firm’s increased earnings to, “much higher fractionation, or ‘frac spreads’ for PVR Midstream, due to higher natural gas liquids (NGLs) prices and continued low natural gas costs. We also enjoyed a full quarter’s benefit from the acquisition of a processing plant and expanded capacity in our largest system, the Panhandle system, which allows us to process gas volumes which were previously being bypassed and processed by third parties. We anticipate system throughput and processed volumes will increase in 2010 as producers’ drilling activity increases as the result of an ongoing recovery in natural gas prices compared to relatively low 2009 levels.”

“Coal royalties revenue, net of coal royalties expense, (which generated about 83% of the Coal and Natural Resource Management segment’s 4th quarter revenues), was slightly higher, compared to Q3 2009, but was 12% lower than the Q4 2008. Other revenues, while 13% higher as compared to the third quarter, were 28% lower than Q4 2008, due to a year-over-year decrease in the prices of timber and natural gas.”

PVR just paid a $.47/unit distribution, unchanged from 2009. This equals $1.88/unit annually, an 8.38% annual dividend yield. (PVR closed at $22.44 Friday).  The dividend payout is well-covered , with distributable cash flow/unit of $.93 this quarter, vs. a $.47/unit payout.

Although the next quarterly distribution won’t be for 3 months, investors could also profit from PVR by selling put options.  The August 2010 $20.00 put option is currently bid at $1.40, a 7% nominal yield, but a 13.5% annualized yield, on a 6-month-plus trade.  This put option’s breakeven is $18.60, which is 17% lower than the current $22.44 price.

PVG, the general partner of PVR, was founded in 1882.  Through its subsidiaries, it owns 4,069 miles of natural gas gathering pipelines and 5 natural gas processing facilities, in addition to having approximately 827 million tons of coal reserves in Central and Northern Appalachia, the San Juan Basin, and the Illinois Basin.

PVG also had good earnings, coming in at $.32/unit vs. $.24 a year ago.  Distributable cash flow was unchanged, and PVG paid a $.38/unit dividend on Feb. 2nd, a 9.2% dividend yield. There are no options available for PVG.

Corporate structure: Penn Virginia Corp. (PVA), owns 51% of PVG, which is the general partner and largest unit-holder of PVR.

Disclosure: No positions

Disclaimer: This article is written for informational purposes only.

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Alexandria Real Estate (ARE)- 4 High Dividend & Option Yields

Saturday, January 23rd, 2010

Alexandria Real Estate Equities REIT, (ARE), is the largest landlord for biotech firms in the U.S., which makes it a play on Healthcare.Although its common stock dividend is not very high, (currently a 2.26% dividend yield), there are 4 ways to achieve high single and double-digit yields from this stock:

1.With its juicy options, ARE is listed in our Covered Call tables, with a 14%-plus current yield on its July $65 calls, which are currently bid at $4.20. (ARE closed at $61.88 Friday).

The potential assigned yield for selling these covered calls 10.58% annualized, giving you a total potential yield of 27.19%.

2. Our Covered Put tables list $60 July covered puts at a $5.00 bid, for a 17.50 % annualized yield. (This yield is based on a 100% cash reserve.)

3. Alexandria has a preferred  stock,  AREEP, a cumulative convertible series D stock, that pays $1.75/share per year, in quarterly payments. AREEP is now at $21.75, and has a 7.97% yield. It’s callable in 2013 at $25.

4. Alexandria has another preferred stock, AREPC, a cumulative convertible series C stock, that pays $2.09/share per year, in quarterly payments. Note: This preferred stock is now callable at ANY TIME at $25/share, and it closed at $25 on Friday. This dividend yield is 8.36%.

Note: Many of the free finance sites have very sketchy info on preferred stocks. The online brokerage sites may provide better and more details.

Disclosure: Author long ARE preferred shares

Disclaimer: This article was written for informational purposes only.

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A Utility Making The Right Moves – Brookfield Infrastructure Partners

Thursday, November 19th, 2009

If you’re looking for dividend paying stocks with exposure to overseas infrastructure, AND a high dividend yield, Bermuda-based Brookfield Infrastructure Partners, BIP, may be one of the best stocks to check out.

BIP has the highest dividend in the Utilities section of our High Dividend Stocks by Sector tables.  BIP owns electricity transmission systems, timberlands and social infrastructure in North and South America, the United Kingdom and Australia.

By closing a deal with Australian company, Babcock & Brown Infrastructure, BIP is about to make itself even more attractive by acquiring interests in a broad range of infrastructure projects in more key areas.  These new acquisitions include:  Natural gas pipelines in western Australia, a midwestern U.S. gas pipeline, port concessions in China, a coal terminal in Australia, and other gas and electricity distribution assets in the U.K., New Zealand and elsewhere.

BIP compares quite favorably to its peers in the Electric Utilities industry:

Brookfield Infrastructure Partners Electric Utility Industry Avgs.
Debt/Equity Zero Debt 54.00%
Gross Margin 91.67% 33.48%
P/E 7.63 14.89
Price/Free cash/Share 3.08 18.46
ROA 8.50 2.96
ROI 81.46 3.40

BIP pays a $.265/share dividend quarterly, which is currently a 6.78% dividend yield.

There are also options available for BIP, for those interested in covered calls and covered puts, or cash-secured puts. A possible covered call trade would be to sell the June $17.50 strike, (BIPFW), which has a big bid/ask spread of $.60/$1.60.

Conversely, more skeptical investors might sell the June $15.00 put option, BIPRC, for a 10% yield, ($1.50 bid) , or possibly more, since the ask is at $2.50.

Disclosure: No positions yet.

Disclaimer: This article is written for informational purposes only.

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Banco Santander, (STD) – A Backdoor Into Brazil – Nov. 12, 2009

Wednesday, November 11th, 2009

Although our High Dividend Stocks by Sector Tables don’t break out foreign stocks, there are still some impressive foreign dividend paying stocks to be found there.  Spain’s Banco Santander, (STD), is the biggest Eurozone bank, and has fared much better than most other megabanks during the crisis, partially as a result of stringent Spanish banking laws forcing it to avoid toxic assets.

Overall, it appears to be one of the best stocks in the financial sector.

While other big banks have been forced to curtail spending, Banco Santander raised $7 billion to fund additional Brazilian expansion, by selling a minority stake its Brazilian operation .  It’s currently the number 3 bank in Brazil, and it has targeted the hottest area for Brazilian GDP growth – the southern region near Sao Paolo.

Business Week reports that, “Brazil accounted for more than one-fifth of Santander’s $6.8 billion in “attributable profit,” or net minus capital gains, in the first half of this year. (Attributable profit is the only earnings measure for which the bank provides a breakdown by country.)

That’s up from just 11% for the same period in 2008. Analysts say the change is due primarily to the consolidation of Brazil’s Banco Real, which Santander bought for $16 billion in 2007 as part of the ill-fated takeover and carve-up of Dutch financial giant ABN Amro by Santander, Royal Bank of Scotland, and Fortis.”

“While RBS and Fortis have struggled ever since, Santander’s gamble paid off handsomely. Its expanded footprint in Brazil helped offset the bank’s slowing operations in other regions—particularly Spain and Britain—during the worst of the downturn.  Lending in Brazil, for instance, jumped 16% during the first half of 2009, compared with just 1% in Spain over the same period.”

STD also has options available.  Investors wanting to improve upon the dividend yield could sell covered calls.  The March 2010 $17.50 call option for STD listed in our Covered Call Table is currently worth a $1.15 bid.  In addition, you’d qualify for $.16/share in dividends during that period.   At STD’s closing price of $17.23, this would equal a 7.6% static yield for just over 4 months, or 21.00%-plus annualized.

Conversely, if you’re feeling skeptical about STD’s current price, which is only 2% below its 52-week high, you may want to look at selling cash-secured Put options against STD.  The March $15.00 put that’s currently listed in our Covered Put Table is bid at $.75, which equals over 14% annualized.  The breakeven is $14.25.

Investors should be aware that selling covered calls necessitates buying the underlying stock before selling calls against it.  When selling cash-secured puts, check your broker’s cash reserve rules – some brokers require a cash reserve equal to 100% of the underlying shares value, while others may require less cash up front.

Disclosure: No Positions

Disclaimer: This article is written for informational purposes only.

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Capstead Mortgage, (CMO) -A Fed Interest Rate Beneficiary – Nov. 4, 2009

Wednesday, November 4th, 2009

Looking for a strong dividend paying stock that will benefit from the Fed’s historically low interest rate program?

With the recession apparently over, the Federal Reserve on Wednesday held a key interest rate at a record low and again pledged to keep it there for an “extended period” to foster the fragile economic recovery.

Capstead Mortgage, (CMO), a mortgage REIT from our High Dividend Stocks by Sector tables, (they’re in our Financials table), now yielding 17.79%, has the highest dividend yield in the Mortgage Investment sub-industry.  CMO invests in residential Adjustable Rate Mortgages issued and backed by U.S. government agencies, Fannie Mae, Freddie Mac, and Ginnie Mae.

They recently reported a modest decline in Q3 earnings, (down 3.44%), but increased their book value to $12.21 per common unit, which brings their current Price/Book to 1.05, in line with the other 3 high dividend stocks in their peer group: Hatteras Financial, (HTS), Annaly Capital, (NLY), and MFA Financial , (MFA), whose Price/Book values are running from 1.01 to 1.09.

CMO earned $.56/common unit in Q3 and declared a $.56 payout as well, in line with the high payout ratios mandated for REIT’s, in return for not paying corporate taxes.
Businesswire reported these comments from CEO  Andrew F. Jacobs:

To continue reading, click here…

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