By Robert Hauver
Dividend investors have been looking for cover ever since the S&P downgrade of US credit, but, it seems that some of the best stocks to buy or own during these latest financial storms are Dow dividend stocks. At the time of this writing, 12 out of the 30 Dow Jones Industrial stocks have exceeded the S&P and the DOW since the S&P US credit downgrade on August 5, 2011. Even better, they’re all dividend paying stocks:
This week, Walmart and Home Depot both upped their guidance, and reported EPS increases for the most recent quarter, which has helped them to weather the latest market storm better than other Dow 30 stocks. Seventy-five per cent of these stocks had improved earnings in their most recent quarter, (see the Valuations table at the end of this article). Note also that, other than Cisco, these stocks all have a Beta under 1, which certainly helps in times of market downturns.
JNJ, MRK, PG, T, and VZ are listed in their respective sectors in our High Dividend Stocks By Sectors Tables.
Selling Covered Calls:
Since we’re entering the historically rocky months of Sept. and Oct., you may want to hedge your bet by selling covered calls. In a way, selling covered calls is like getting paid to insure your stocks, in that the additional option $ you receive will lower your downside risk, via a lower breakeven point.
The following table illustrates how much you can currently earn from selling covered calls for five of these stocks. Note how the call options premiums all outstrip the dividends during this approx. 5-month period, sometimes by 2 to 1. (The call options listed in this table all expire in Jan. 2012.)
You’ll find more info on these and many other covered calls in our Covered Calls Table:
Selling Cash Secured Puts:
Selling cash secured put options below a stock’s current price will also achieve a lower breakeven price, and afford you further downside price protection.
Thanks to the recent rise in volatility, these put option premiums pay up to 6 times the dividends during this same five month term.
(All put options in this table expire in Jan. 2012.)
There’s more info on these and many other cash secured put options in our Cash Secured Puts Table:
IBM, Coke, and McDonalds appear to be the most efficiently run firms, on an ROE/ROI basis. McDonalds and Coke also enjoy the highest operating margins.
Verizon looks to be the most undervalued on a next fiscal year PEG basis. VZ’s earnings have benefited from their Apple iPhone deal, which AT&T formerly had locked up. Home Depot, Coke, IBM, and AT&T have next year PEG’s approaching the undervalued threshold of 1. (You could actually get to a breakeven cost that would give you a PEG of under 1 for T by selling puts.) The healthcare stocks, JNJ,PFE and MRK, all have low analyst average earnings estimates for their next fiscal year, due to expiring patents, among other issues.
Disclosure: Author is long PG, T, IBM shares and short PG calls.
Disclaimer: This article is for informational purposes only, and isn’t intended as individual investment advice.
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