Best Stocks to Buy Right Now In 2011 and 2012

2 Auto Industry Dividend Stocks With Undervalued Growth

March 9th, 2012

With the S&P 500 up over 8% year-to-date, finding undervalued dividend paying stocks has become more of a challenge, but we did find two, hiding in plain sight, in the resurgent US auto industry, of all places. It’s been a bit over 3 years since we generous taxpayers bailed out the Auto industry, and now it appears that Ford is finally on a growth path, and GM is also projected to grow its earnings in 2012, after a Q4 2011 EPS slowdown. Both of these firms had impressive year-over-year EPS growth, as did the overall auto industry.

Take a look at these very low P/E’s – 2.44 for Ford, and 5.43 for GM, which, coupled with their strong growth forecasts for 2012, give these 2 stocks some of the lowest PEG ratios currently seen in the market:

F-GM-PEG

Dividends: Ford just rejoined the world of dividend stocks in 2012, reinstating its quarterly dividend, after a 5-year-plus gap. GM says it hasn’t any plans to reinstate its common share dividends, but GM does have this to offer: 4.75% Series B Mandatory Convertible Junior Preferred shares, which pay a $.59375/share quarterly dividend. These preferred shares are trading at $41.54, a 17% discount to the par $50.00 call price, and offer a 5.72% dividend yield.

GM’s Preferred B shares must convert on 12/1/2013 into a varying amount of GM common shares, based upon these formulas:

A. 1.2626 common shares per preferred unit, if GM’s common stock is equal to or more than $39.60; OR,

B. 1.5152 common shares per preferred unit, if GM’s common shares are at $33.00 or less.

Here’s the rub: at GM’s current $25.14 price/common share, the conversion would equal just $38.09, a $3.45 conversion shortfall to the preferred shares’ current price of $41.54. So, GM’s common stock would have to rise to $27.42 to break even at conversion time in Dec. 2013.

Alternatively, it would take collecting approx. 6 quarterly dividends, through 9/1/12, to overcome the $3.45 shortfall. A third, and more profitable outcome would be if GM rises past $27.42 and you collect the quarterly dividends in the meantime.

You can find the GM preferred shares listed on Yahoo Finance with the ticker, GM-PB. Financial and brokerage websites seem to love making preferred shares as confusing as possible, by giving them varying symbols. There’s also not a lot of backup info, such as dividend history and terms, on the web for preferreds. However, preferred shares can be a lot less volatile in times of market volatility.

F-GM-DIVS

Covered Calls: If those arcane conversion calculations and potential outcomes are giving you a headache, don’t sweat it- there’s an easier way to profit from GM.

You can sell Sept. 2012 Covered Call options on GM’s common shares, and earn nearly as much option $ now, as you’d earn in 12 months of holding the preferred shares.

There’s also the additional potential for earning an additional assigned price gain of $.86/share, if GM rises past the $26.00 strike price, which would most likely result in your GM shares being assigned/sold at expiration time. The caveat with selling covered call options is that you’re earning an option premium now, in return for agreeing to sell at the strike price up until the expiration date.

(You can discover additional details for this and over 30 other high options yields trades in our Covered Calls Table.)

GM-CALL

Cash Secured Puts: Maybe you’re not so bullish on the market, or on Ford or GM, so you don’t want to buy them at their current prices? Fortunately, both of these stocks have lucrative put options yields, which offer cash secured put sellers the chance to get paid now to wait.

These two put options trades listed below both have put options that are below the current stock prices of Ford and GM, and thereby give you the opportunity to achieve a lower break-even cost that’s over 10% below these stocks’ current prices.

As with selling call options, selling puts offers a quick payment of the option premium, within 3 days of the option sale, so you get the use of the option premium $ right away. Your broker will secure cash in your account that’s equal to the number of puts that you sell, times 100, times the strike price, hence the name cash secured puts. (Each option contract corresponds to 100 shares of the underlying stock.)

(You can find more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

F-GM-PUTS

Share Performance & Technicals: Both Ford and GM are well off their 52-week highs. Both of these stocks have been some of the best stocks to buy in 2012 for price gains, but they’re still down over the past year. They’re currently in the Relative Strength neutral zone, being neither overbought or oversold:

F-GM-PERF

Disclosure:

Author owns shares of Ford, and used to own a Mustang, back in the Stone Age.

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

Tags: call options, cash secured put, cash secured puts, covered call, covered calls, dividend, dividend paying stocks, dividend stocks, dividend yield, dividends, ex-dividend date, F, ford, gm, high options yields, put options
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These 2 Dividend Aristocrats Have The Best Earnings Growth

March 2nd, 2012

Are you searching for dividend paying stocks you can depend on? The Dividend Aristocrats is an elite group of dividend stocks, created by Standard & Poors, whose members have increased their dividends for at least the last 25 consecutive years. In fact, some of them have done so for many more years than that. This group lost a few members during the economic downturn, so it’s quite a testament to the earnings power and management of those stocks that not only survived the crisis, but also managed to increase their dividend payouts during it.

We looked for stocks within this group who had consistent earnings growth, good mgt. metrics, and valuations that haven’t gone sky high, via the rally of the last few months, and we found these 2 impressive companies from 2 different sectors and industries, Nucor Steel, and VF Corp:

NUE-VFC-SECTOR

(We listed Company profiles at the bottom of this article.)

Earnings & Valuations: These are 2 of the very few Dividend Aristocrats stocks which achieved strong growth not only in their most recent fiscal year, but also impressive quarter-over-quarter earnings and sales growth, AND, have strong growth forecasts for their next fiscal year. NUE looks undervalued vs. its Steel & Iron industry peers, on a PEG, P/E, and Price/Sales basis, but is pricier on a Price/Book basis.

VFC’s earnings industry comps also look superior. Their projected Next Fiscal Year EPS growth is lower than the industry avg., since the industry is bouncing back from very poor growth in the most recent fiscal year and most recent quarter. Having gained over 26% in the past 6 months, VFC’s share price gains have pushed its valuations higher as well, particularly Price/Sales:

NUE-VFC-PEG

Dividends: With its above-avg. dividend, NUE is listed in the Industrials section of our High Dividend Stocks By Sectors Tables. Both of these stocks have upcoming March ex-dividend dates:

NUE-VFC-DIVS

Covered Calls: If you want to increase your yields over the short term, selling covered call options can offer you some lucrative additional income. In addition to often paying you fat premiums, selling options is a way to generate quick income from stocks that you own or wish to buy. Both of these 2 covered call trades feature high options yields, and have strike prices that are higher than their respective stocks’ current share prices. The higher strike price gives you the possibility of potential price gain profits, in addition to your dividend and call option income. If you’re more bullish about a stock, you may want to sell covered calls at a higher strike price – the difference between the strike price and the stock’s cost equals your potential price gain, or assigned yield.

These two 3-5 month trades have call options that outpay the dividends by up to 6 times.

(You can find more details for these and over 30 other trades in our Covered Calls Table.)

NUE-VFC-CALLS

Performance & Technical Data: Both NUE and VFC have been among the best stocks to buy for price gains over the past few months, but NUE is still down for the past year:

NUE-VFC-PERF

Cash Secured Puts: Since these stocks are near their 52-week highs, you may want to consider another strategy, selling cash secured puts, in order to achieve a lower break-even. The VFC $145 put option is below VFC’s current price, and gives you a break-even of approx. 6% below VFC’s price. The put options pay out up to over 8 times more than the dividends do over this short term.

If you want to be even more conservative, and get a lower break-even price, you can sell cash secured put options at a strike price even further below the stock price, which won’t pay you as much of a put premium, unless you sell them further out in time. Generally, the further out in time you sell an option, the higher premium/payout you’ll receive.

(You can see more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

NUE-VFC-PUTS

Financials: Not much to complain about with these financial figures, excepting Nucor’s lower operating margin, which is probably due to them using scrap metal as their feedstock:

NUE-VFC-ROE

Company Profiles:

Nucor:: Established in 1940, Nucor is the largest steel producer in the US, and is the largest recycler of scrap steel in the world. Nucor produces many steel products, such as structural steel, sheet steel, plate steel, cold finished steel, and wire mesh, and also acts as a raw materials broker in the steel industry. (Source: Nucor Corp. website)

VF Corp: At $9 billion in sales, VF is the world’s largest apparel company. VF owns many famous apparel and footwear brands, such as Lee, Nautica, Wrangler, Eagle Creek, and others. VF’s lifestyle businesses – Outdoor & Action Sports, Sportswear and Contemporary Brands – are targeted to be more than 60% of total revenues by 2015. VFC is aiming to add $5 billion in organic revenue growth and $5 in earnings per share over the next five years from 2010 levels. Strong growth in our highly profitable international and direct-to-consumer businesses is expected to fuel an expansion in operating margins to 15%. Over the next five years, VFC’s goal is to grow its international revenues by 15% annually to comprise 40% of total revenues. VFC also expects 15% growth in its direct-to-consumer businesses, which should account for about 22% of revenues by 2015. (Source: VFC website)

Disclosure: Author has no positions in NUE and VFC as of yet, but has definitely worn Wrangler and Lee jeans sometime in the distant past…

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

Tags: best stocks to buy, call options, cash secured puts, covered calls, dividend, Dividend Aristocrats, dividend paying stocks, dividend stocks, dividends, ex-dividend dates, high dividend stocks, high options yields, nue, put options, vfc
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Analysts Are Clueless About These Dow Dividend Stocks

February 24th, 2012

Earnings season is on a roll, and traders are playing the old “earnings estimates beats/misses” game, which often has tenuous ties to reality, at best, as analysts go from being over-excited to being overly pessimistic. Here’s just how wrong analysts have been about Caterpillar over the last 4 quarters:

CAT-ANLYSTMISSES

Could it be that CAT is just a special case? Not really – analysts were even more clueless about Boeing. Can you just imagine, (I shudder to think), if you were to submit an estimate to your boss that was off by over -80%, and then followed up that brilliant piece of work with another estimate that was off by over -30%? Do you think it might possibly prompt a reassignment or even a permanent vacation? Not so on Wall St. – where being consistently and often egregiously wrong is OK.

Why is that? Because it supports the trading excitement of “Earnings Beats & Misses”. Just think about it, the market often bases its decisions on the estimates of a group of external people, who don’t have access to the daily, inside info of the stocks they’re supposed to be informing us about. If this sounds like folly, it often is:

BA-ANLYSTMISS

Instead of just listening to analysts “pie in the sky” or “gloom and doom” predictions, try looking at what companies actually earned each quarter vs. a year ago:

BA-CAT-EPS GROWTH

We can also look at their quarterly Revenue Growth vs. a year ago:

BA-CAT-SALES

CAT has been one of the best stocks to buy in 2012 and in 2011 for price gains, but Boeing shares haven’t risen nearly as much. Here’s one reason why. BA is forecasting lower 2012 earnings per share, of $4.05 to $4.25, vs. 2011’s $5.33 EPS, whereas CAT is forecasting continued strong growth. Even though BA has a record order backlog, unlike other companies, they can’t rush their highly technical products to market.

BA is forecasting just $4.05 to $4.25, but analysts are estimating $4.46/share 2012 EPS, AND, guess what? Analysts are currently forecasting EPS of $5.67 for BA in 2013, which is 6.4% over BA’s 2011 earnings. Do you believe them?:

CAT-BA-PEG2012

How can a value investor take advantage of Analysts’ mistakes? By waiting for the analysts’ next overheated incorrect estimate, which may be so ridiculously high that even a company posting strong gains can’t “beat” it, which is what happened with CAT in 2011, when analysts had somehow not factored in the expenses of CAT’s multi-billion dollar purchase of mining equipment maker Bucyrus.

When the stock gets beaten up, and discounted unnecessarily, make your move, and buy it, OR, do this:

Sell Cash Secured Puts: If you want to give yourself more breathing room, you can sell cash secured put options below the stock’s current price, which will give you a lower break-even price. 2 other important benefits: you’ll get paid now to wait, and you’ll often get paid much more than the next few quarters’ dividends. Fortunately, CAT has rather high options yields which are much higher than its dividend yield.

In these two examples, CAT’s put options pay over 9 to 12+ times the amount of its dividends. The further out in time you sell options, the more premium you’ll get paid, and the lower your break-even price will be. However, your annualized yield will also be lower, because your broker will be holding a cash reserve of 100 times the Put Strike Price in your account against each Put that you sell, until the put expires or is assigned or you buy it back to close out your position.

(You’ll find more info on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.):

CAT-PUTS-2-23-12

How to hedge your gains with Covered Calls: Conversely, if you now own CAT shares, and you’re leery of a market pullback, selling covered call options will protect some of your profit, by giving you additional option income on your shares. The caveat is that, by selling a call option, you’re obligating yourself to sell your shares at whatever strike price you sell the calls at. Typically, the shares will get assigned near or at expiration, if the stock rises above the strike price. So, you’re foregoing potential price gains, in return for immediate option income.

However, these 2 covered call trades each have strike prices above CAT’s current stock price, offering you the potential for an additional $3.80/share in price gains, if your shares get assigned. The longer-term August call options pay more than the May calls, and both call options heavily outstrip the corresponding dividend payouts. (One options contract corresponds to 100 shares of stock.)

(You can see more details for these and over 30 other lucrative option trades in our Covered Calls Table.):

CAT-CALLS-2-23-12

Financials: Although they aren’t high dividend stocks, these two DOW dividend stocks both have attractive Mgt. Ratios, and good interest coverage, but if you’re looking for 2012 growth at a reasonable price, CAT is the more undervalued of the two. In fact, CAT is one of the few DOW 30 stocks to have a low 2012 PEG ratio. However, as CAT has risen almost 29% year-to-date, you may want to wait for a pullback before jumping in.

BA-CAT-ROE

Disclosure: Author is short CAT put options.

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

Tags: ba, boeing, call options, cash secured puts, cat, caterpillar, covered call, covered calls, dividend, dividend yield, dividends, high dividend stocks, high options yields
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3 High Dividend Stocks With Strong Growth And High Options Yields

February 17th, 2012

This week we’re focusing on 3 high dividend paying stocks, from 3 different industries, sectors, and countries – all of which have strong growth over the past year, past quarter, and also have good growth forecasts for their next fiscal year. This diverse group contains a large cap, mid-cap, and a small cap, all of whom are listed in our High Dividend Stocks By Sector Tables:

BGS-CTEL-PROFILES

(All Company Profiles are listed at the bottom of this article)

Growth & Valuations: All 3 firms had robust earnings growth in their most recent fiscal years, and quarters. Next fiscal year growth is also projected to be good. CTEL and NUE both have low PEG valuations, (P/E to Earnings Growth).

BGS rose 69% over the past 12 months, and is currently trading near the high end of its 5-year P/E range. CTEL is much closer to its 5-year P/E low of 6.21 than its high 5-year high P/E of 39.65. NUE is also in the low end of its 5-year P/E range, which was very wide: 7.72 to 104.86. All 3 of these dividend stocks currently have above-average Price/Book ratios for their industries.

BGS-CTEL-PEG

Dividends: NUE is one of the stocks in the Dividend Aristocrats group, and has increased its dividends every year for the past 27 years. CTEL pays semi-annual dividends, and had ex-dividend dates in May and December in 2011, with equal payments of $0.386/share, a 53% increase over 2010’s dividend. BGS also increased its dividend in 2011, from $.21 to $.23.

BGS-CTEL-DIVS

Covered Calls: All 3 of these stocks have options available , which offer an opportunity to improve upon your dividend yields and improve your cash flow.

The options listed in the 2 tables below have the following expiration months:

BGS: August; CTEL: Sept.; NUE: July.

Frequently, selling covered call options can offer you much higher, short-term payouts than just collecting dividends. The covered call strategy will give you a second, immediate income stream, since you get paid within 3 trading days when you sell options. NUE’s call options pay over 5 times the dividend payouts in this 5-month trade listed below. BGS’s covered call options pay over 3 times more than its dividends pay over the next 6 months.

(You can discover more details for these and over 30 other lucrative option trades in our Covered Calls Table.)

BGS-CTEL-CALLS

Cash Secured Puts: Selling cash secured put options is another options trading strategy that also has high yield, quick cash payouts, such as those listed below. The put options for NUE outpay the quarterly dividends by over 7 to 1 in this 5-month trade.

The annualized yields below are based upon a 100% Cash Reserve, which is the amount your broker will set aside in your account when you sell put options. This amount equals 100 shares times the Put Strike Price. We covered more of the specifics of put selling in last week’s article. Unlike call sellers, though, put sellers don’t collect dividends.

(Note: There are more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

BGS-CTEL-PUTS

Financials: Even though Nucor’s mgt. ratios look lower than these other 2 firms’, they are actually much better than its steel industry peers. Nucor’s website also says that its “5-year 371% return to shareholders beats all other S&P 500 firms”. CTEL’s ratios are much higher than its telecom industry peers, plus it’s debt-free, and BGS has a superior ROE and in-line ROA and ROI to its food industry peers.

BGS-CTEL-ROE

Performance & Technical Data: Although these stocks are way above their 52-week lows, CTEL and NUE are still down vs. 1 year ago, even though they both greatly improved their earnings.

However, investors have been rewarding CTEL and NUE this year, and they’ve been among the best stocks to buy in 2012 for price gains so far:

BGS-CTEL-PERF

Company Profiles:

BGS: B&G Foods and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-stable foods across the United States, Canada and Puerto Rico. B&G Foods’ products include hot cereals, fruit spreads, canned meats and beans, spices, seasonings, marinades, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-style sauces, taco shells and kits, salsas, pickles and peppers and other specialty food products. B&G Foods competes in the retail grocery, food service, specialty store, private label, club and mass merchandiser channels of distribution. Based in Parsippany, New Jersey, B&G Foods’ products are marketed under many recognized brands, including Ac’cent, B&G, B&M, Brer Rabbit, Cream of Rice, Cream of Wheat, Don Pepino, Emeril’s, Grandma’s Molasses, Joan of Arc, Las Palmas, Maple Grove Farms of Vermont, Ortega, Polaner, Red Devil, Regina, San Del, Sa-són Ac’cent, Sclafani, Trappey’s, Underwood, Vermont Maid and Wright’s. (Source: B&G Website)

CTEL: Established in 1992, City Telecom (H.K.) Limited provides integrated telecommunications services in Hong Kong via its own self-built fibre network. City Telecom’s wholly-owned subsidiary, Hong Kong Broadband Network Limited (HKBN), is the fastest growing broadband service provider in Hong Kong. HKBN offers a diversified portfolio of innovative products that service over 1,240,000 subscriptions for broadband, local telephony and IP-TV services. CTI participated in the investment for construction of submarine cables, including Japan-US Cable to connect the US and Japan across the Pacific Ocean, as well as Asia Pacific Cable Network 2, connecting us to eight districts in Asia and allows direct connection with the major fixed network operators in China. (Source: City Telecom website)

NUE: Founded in 1940, Nucor is the largest steel producer in the US, and is the largest recycler of scrap steel in the world. Nucor produces many steel products, such as structural steel, sheet steel, plate steel, cold finished steel, and wire mesh, and also acts as a raw materials broker in the steel industry. (Source: Nucor Corp. website)

Disclosure: Author is long BGS and short BGS call options.

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

Tags: best stocks to buy, bgs, call options, cash secured puts, covered calls, CTEL, dividend, Dividend Aristocrats, dividend payout ratio, dividend stocks, dividend yields, dividends, ex-dividend dates, high dividend paying stocks, high dividend stocks, high options yields, nue, put options
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Heavy Institutional Buying For This High Dividend Stock

February 10th, 2012

Institutional buyers have increased their purchases of Textainer (TGH), by over 12% over the past quarter, pushing its share price up by over 8% thus far in 2012. Thanks to institutional support, TGH has also been one of the best stocks to buy for price gains over the past 6 months, having risen nearly 40% from its summer lows:

TGH-PERF

TGH-PROFILE

TGH’s institutional support is in stark contrast to its container-leasing industry peers, especially SeaCube, (BOX), which has seen a huge decrease in institutional buying in the past 3 months. The stocks in this group are mostly small caps, ranging in size, from $330M Seacube (BOX), up to $2.04B mid-cap, GATX Corp. (GMT), which is also in the railway business.

Judging by TGH’s industry-low Institutional Ownership, it may have quite a bit of room to gain further support:

TGH-PEERS-INSTITBUYG

Company Profile: Textainer has operated since 1979 and is the world’s largest lessor of intermodal containers based on fleet size. TGH has a total of 1.7 million containers, representing 2.5 million TEU, in its owned and managed fleet, and leases containers to more than 400 shipping lines and other lessees. TGH leases standard dry freight, dry freight special containers, and refrigerated containers. They are one of the largest purchasers of new containers annually, and believe that they’re also the largest seller of used containers, selling up to 100,000 containers per year to more than 1,000 customers. (Source: TGH website)

One reason for Textainer’s popularity with the institutional trade is its hefty 98.6% fleet utilization rate, which increased from 98% in the 3rd quarter of 2011. TGH also increased its net income/share for the first 9 months of 2011 by 40%, and raised its revenue by over 43%. Container rates have been at historic highs, and, while the company thinks that they may have peaked, they feel that these rates will still remain at a high level for the immediate future. Container demand has been very strong, especially for refrigerated containers, which is a result of the expanding global food distribution business.

Dividends: TGH has had a 75% dividend growth rate since 2007, and also raised its dividend every quarter in 2011, going from $.29, to $.35. TGH is currently listed in the Industrials section of our High Dividend Stocks By Sectors Tables.

Note: TGH’s next ex-dividend date may be later than Feb. 17th, due to the fact that they normally announce their quarterly dividend info at each quarter’s earnings call, and their next earnings call will be on Feb. 14, 2012:

TGH-DIVS

Covered Calls: Although TGH doesn’t have the high options yields that we’ve written about in many other articles, you could still double your dividends on TGH, via selling covered call options. The call option and put option trades listed in the tables below both expire in August 2012. Selling the Aug. $35 covered call would also leave room for big potential price gains, if your shares are assigned/sold.

This is a breakdown of the income from this 6-month covered call trade:

1. Dividend income: $1.05

2. Call option income: $1.10

Total Static Income: $2.15 This is your income if TGH doesn’t rise past the $35.00 strike price, giving you a Static Yield of 6.82% for approx. 6 months, or 13.17% annualized.

3. Potential Price gains: $3.47 This is the difference between the $35.00 strike price and the $31.53 stock price.

4. Total Potential Income: $5.62 This gives you a nominal yield of 17.82% during an approx. 6-month term, or 34.42% annualized.

(You can see many more details for these and over 30 other trades in our Covered Calls Table.)

TGH-CALLS

Cash Secured Puts: Selling cash secured put options can be a lucrative way to “sneak up on a stock”, in that you get paid now to wait. Although put sellers don’t collect any dividends, put options often pay 2 or more times what a stock’s dividends may pay during a short term.

Example: In the put option trade below, let’s say that you sell one Aug. 2012 $30.00 put for TGH. You’d get paid $2.05/share, or $205.00 within 3 days of the trade, or often even the same day. (1 option contract corresponds to 100 shares of the underlying stock, be it puts or calls.)

When you sell this put option, your broker will reserve $3000.00 in your account, until expiration, to insure that you have enough funds to buy 100 shares of TGH at $30.00. By selling the put option, you’re obligating yourself to potentially have to buy 100 shares of TGH at $30.00 at or near expiration. In general, most option contracts aren’t assigned until around expiration time, since most option buyers find it more profitable to just buy and sell the options rather than the underlying stock. However, time works against the option buyer, and works in your favor as an option seller, since it steadily erodes the value of an option, the closer it gets to expiration.

Potential Outcomes:

Assignment: If TGH goes below $30.00 at or near expiration, you’ll likely be assigned/sold 100 shares of TGH at $30.00, BUT, your net cost is only $27.95, the $30 strike price, less the Put premium of $2.05. Therefore, if TGH is anywhere above $27.95, you still can sell it at a profit, or hold onto it.

Static: If TGH doesn’t fall below $30.00 at or near expiration, you won’t get assigned any TGH shares, and your broker releases your $3,000.00 cash reserve.

(Note: You can find more details on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)

TGH-PUTS

Valuations: The industry avgs. below for Most Recent Fiscal Year Growth are skewed higher by the 2 smaller firms, BOX and CAP, both of whom had wild, triple-digit EPS growth gains. However, their projected growth for their next fiscal year is much more calm, at 9% to 10%, which may be why the institutional buyers aren’t buying these stocks as much as they had in the past.

TGH-PEG

Financials: TGH has better management and financial metrics than its peer industry avgs. Two other negative factor for BOX is that it has Debt/Equity of over 5, and Interest Coverage of only 1.8, both worse than industry avgs.

TGH-ROE

Disclosure: Author is short TGH put options.

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

Tags: best stocks to buy, box, call option, call options, cap, cash secured puts, covered call, covered calls, dividend, dividend growth rate, dividend payout ratio, dividends, ex-dividend date, gmt, high dividend stocks, high options yields, put option, put options, tal, tgh
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The Top 5 Foreign Dividend Stocks For 2012

February 2nd, 2012

Which will be the best stocks to buy for dividends in 2012, foreign or US? Just like the dividend paying stocks in last week’s article, The Top 5 US dividend stocks for 2012, the top 5 foreign dividend stocks for 2012 are ranked here by which ones will make the largest total cash payouts in 2012. This elite group contains firms from 5 countries, in these industries: oil majors, mobile phones, money center banks, and commodities producers. Two of these stocks are listed in our High Dividend Stocks By Sectors Tables :

Dividend Growth Rate: Excepting financial stock HBC, all of these stocks have an impressive 5-year dividend growth rate. All of them also increased their 2011 dividends per share, except for Shell, which, however, just announced plans to increase its dividend in 2012:

CHL-BBL-DIVGROWTH

Projected 2012 Dividends: For the table below, we took the conservative route, and projected the same dividend payouts/share as in 2011. However, given these firms’ strong earnings, low debt loads, and past dividend growth rates, it’s very probable that they’ll continue to increase their dividends in 2012. (There are 2 classes of Shell shares, while Billiton actually operates as 2 different companies, with different ticker symbols, and divergent prices, but reports as one economic unit. The cheaper BBL shares have a higher dividend yield than the BHP shares, since the dividends are the same.)

CHL-BBL-DIVS-2012

Covered Calls: Interested in earning more income from these dividend paying stocks? You might want to try selling covered call options, a strategy which gives you a second income stream that often pays you much more than dividends do, over the short term. The Sept. 2012 call options listed here for BBL and PTR both outpay their dividends by nearly 2 to 3 times during this 8-month term.

What’s the catch? Your shares of BBL and PTR may potentially be sold/assigned at their call strike prices, if the stocks rise above them near expiration in September. In the BBL trade, you’re basically getting paid $5.90/share now, to make the bet that BBL won’t rise higher than its $70.00 call strike price.

In addition to the call option $, you’ll also collect the 2 semi-annual dividends, which have ex-dividend dates prior to the call option expiration date, provided that the shares don’t get called/sold away from you before the ex-dividend dates. However, if the shares do get assigned, you’ll also earn an additional $.97/share in this example- the difference between BBL’s 2/2/12 $69.03 share price, and the $70.00 call strike price.

(You can see additional details for these and 30 other trades in our Covered Calls Table.)

CHL-BBL-CALLS

Cash Secured Puts: Maybe you fell that PTR is too expensive at $148.90? If so, you may want to sell cash secured put options below PTR’s current price, in order to achieve a much lower break-even price.

PTR closed at $148.90 on 2/2/12, but selling the Sept. 2012 $145.00 put option listed here will pay you $12.90/share now, and give you a break-even of $132.10, over 11% below PTR’s current $148.90 price. As with selling covered call options, selling these put options will pay you over twice what the dividends pay during this 8-month term. However, unlike covered call sellers, put sellers never receive dividends.

The cash reserve equals the amount that your broker will hold in your account, so that you have enough funds to pay for the shares if they get sold/assigned to you. The cash reserve is equal to the put strike price times the amount of puts you sell, times 100. (One option contract corresponds to 100 shares of the underlying stock.) The main key to selling cash secured puts is to make sure you’d be comfortable owning the underlying stock at your break-even price, before you sell any puts.

(Note: You can find more info on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)

CHL-BBL-PUTS

Earnings/Valuations: (* CCS EPS figure, which excludes the effects of oil price changes on inventory carrying amounts.)

CHL-BBL-EPS

Financials: Like many other financial firms, HBC’s mgt. efficiency ratios got decimated in the financial crisis. BBL/BHP has the best mgt. ratios and operating margin in the group:

CHL-BBL-ROE

Disclosure: Author is short BBL put options.

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

Tags: best stocks to buy, call options, cash secured puts, covered call, covered calls, dividend, dividend growth rate, dividend stocks, dividend yield, dividends, ex-dividend dates, high dividend stocks, put options
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The Top 5 US Dividend Stocks For 2012

January 27th, 2012

Which dividend paying stocks paid out the most cash in dividends in 2011? Did they raise their dividends enough to stay among the top US dividend stocks in 2012 for cash payouts? 2011’s winners were all Dow dividend stocks, all raised their dividends in 2011, and have the size and cash necessary to make this short list.

This group paid investors approx. $6 billion to $10 billion-plus in 2011, and appear likely to increase those amounts in 2012, given their historic and recent dividend growth rates. (Although though GE lowered its dividends in 2009, it started increasing them again in 2010, and continued to do so in 2011, with a huge 21% hike):

T-XOM-DIVGROWTH

Pending Quarterly Dividends: These stocks pay quarterly dividends, and three of them are listed in our High Dividend Stocks By Sectors Tables. The projected dividends listed in the following table are all based upon the most recent quarterly dividends paid:

T-XOM-GE-DIV2012

Other than GE, investors rewarded these stocks for their dividend payouts in 2011- their share performance beat the S&P, which returned a big goose egg for 2011. Chevron, Exxon, and J&J also beat the Dow’s 5.53% return in 2011. So far in 2012, investors are favoring small caps, but that increased “risk on” approach will probably fade, in favor of large caps, when volatility returns to the market:

T-XOM-PERF

Selling Covered Calls: Even though these stocks don’t have the high options yields that we often write about, you can still substantially increase your dividend yields, via selling covered call options. We’ve listed only options for T, XOM, and GE here, as JNJ and CVX currently have much lower options yields.

In the July 2012 XOM covered call trade below, XOM’s call options sell for nearly 4 times the amount of its next 2 dividends. The trade-off is that your shares will potentially be sold/assigned if they rise above the $87.50 July strike price for XOM. But you’d also receive a capital gain of $.73/share, the difference between the price/share of $86.77 and the $87.50 strike price, if the shares are sold/assigned.

The call options in the table below expire in Oct., July, and Sept. for T, XOM, and GE respectively.

(You can find more details for these and 30 other trades in our Covered Calls Table.)

T-XOM-CALLS

Selling Cash Secured Puts: As T, XOM, and GE are all relatively close to their 52-week highs, some investors may choose to sell cash secured puts below the current stock price, in order to achieve a lower break-even entry price.

Selling cash secured put options is an investing approach which pays you to wait: just like selling call options, you’ll get paid now for selling put options. But, if the stock goes below the put strike price at or near expiration, you’ll have it assigned/sold to you for a cost equal to the strike price. However, your break-even will be lower than the strike price, due to the put premium you receive when you sell puts.

In general, most options aren’t exercised until sometime near or at their expiration date. As an option seller, this works in your favor, as the time value of the option that you’ve sold declines steadily.

The T Jan. 2013 $30.00 put strike price below pays you $3.25, making a break-even of $26.75, which is below T’s 52-week low. (The puts in the table below expire in Jan. 2013, July 2012, and June 2012 for T, XOM, and GE respectively.)

(Note: You can see more info on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)

T-XOM-PUTS

Valuations: Although these venerable large caps wouldn’t be considered growth stocks, GE’s PEG ratio is very near to the 1.00 undervalued threshold. XOM has a negative PEG, due to analysts’ current negative growth forecasts for its next fiscal year. However, as we’ve seen before, oil could rise, or even spike much higher, in reaction to world events, particularly in the Middle East. XOM has also turned in earnings surprises in 3 out of the last 4 quarters.

Ather issue for XOM is its increased exposure to natural gas via its 2010 purchase of natural gas giant XTO. With supplies coming on, natgas prices are forecasted to drop until US infrastructure can be built up enough to support increased demand. However, with the current US administration just this week coming out with trucking tax incentives for natgas truck purchases, and other firms building a chain of US natgas fueling stations and liquid natural gas export treminals, demand for natgas may catch up with supply again sooner than later.

T-XOM-PEG

Financials: GE’s debt/equity ratio is much higher than the rest of the group, but it does have an interest coverage of 2.3. XOM and CVX have metrics that are mostly in line with their Oil Majors peers. JNJ’s numbers are superior to its peers, and, with the exception of a slightly lower ROA, T’s numbers outshine its peers.

T-XOM-ROE

If you’re an income investor, this elite group holds some of the best stocks to buy in 2012 for dependable dividends.

Disclosure: Author is long GE, CVX, XOM, and T shares, and short GE call options.

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

Tags: (GE), (T), best stocks to buy in 2012, call options, cash secured puts, covered call, covered calls, CVX, dividend, dividend growth rate, dividend paying stocks, dividends, Dow dividend stocks, high dividend stocks, jnj, put options, top dividend stocks, XOM
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Make Over 20 % By Hedging This Top Dow Dividend Stock

January 19th, 2012

Although it’s nearly flat for the past year, the Industrial sector has been rising strongly over the past few months:

SECTOR-PERF-1-19-12

Promising earnings forecasts are one of the main reasons for this sector’s momentum, as it’s projected to be one of the top sectors for EPS growth over the next 5 years:

SECTOR-PEG-1-19-12

So far, Caterpillar, (CAT), has been one of the best stocks to buy in 2012 for price gains. If you bought CAT in late 2011, you’d have a nice gain already:

CAT-PERF-1-19-12

Although the market has been climbing so far in 2012, many analysts are forecasting a volatile road ahead in the first half of 2012. So how can you protect your gains in CAT?

Fortunately, CAT has some of the highest options yields of any Dow dividend stocks, which will help you to protect a large % of your gains, via selling covered calls.

Different strategies you can use to hedge your gains and earn high yields:

1. Sell covered call options further out in time, to capture a bigger premium, and hedge more of your gains. This table uses CAT’s 2011 year-end price as a cost basis, and illustrates how, the further out in time you sell these $105.00 call options, the more option premium $ you’ll receive.

In the table below, the May option pays $7.50, which hedges almost 50% of the $15.11 year-to-date gain for CAT, whereas the Jan. 2013 option pays $13.65, which hedges over 90% of the gain. The higher, longer-term call premiums will also lower your break-even price.

The trade-off is that your annualized yields decrease as you sell further out in time. However, all of these trades achieve double-digit annualized “static yields”, and much higher potential assigned yields. Static yield equals the call bid premium dividend by the cost basis of the underlying stock, and refers to a scenario in which the stock doesn’t rise above the strike price near expiration, so you keep the underlying shares:

CAT-EXPS-2012-01-19

(You can see more details on over 30 high yield Covered Call trades which we’ve discussed in recent articles in our Covered Calls Table.)

2. If you’re more bullish on the market and/or CAT, you could sell covered call options at a higher strike price, leaving yourself more opportunity for future price gains.

The table below uses CAT’s 1/19/12 closing price as a cost basis, and shows the differences in potential price gains at different strike prices, all expiring in August 2012.

Potential assigned yield refers to the yield on the difference between the stock’s price and the strike price.

In this example, the $105.00 strike price is $.71 below CAT’s $105.71, so if the stock rises above $105.00 near expiration time in August, the underlying shares may get sold/assigned away from you at $105.00. This is the big trade-off of selling covered calls at a strike price “in the money” – you sacrifice potential future price gains for a higher option payment now.

The other two higher strike prices leave you more room for potential price gains/higher potential assigned yields, but pay lower call option premiums:

CAT-STRIKES-2012-01-19

The above call options pay almost 6 to over 10 times the amount that CAT’s dividends pay during this 7-month trade period.

Selling Cash Secured Put Options:

Conversely, if you’re interested in buying CAT, but you’re leery of its current price, you can sell cash secured puts at a strike price below CAT’s current price, and achieve a lower break-even price.

Selling put options obligates you to potentially have to buy the underlying stock at whatever strike price you sell the puts at. “Cash reserve” refers to the amount your broker will set aside in your account, to insure that you have the money to pay for the stock, if it gets sold/assigned to you at expiration. For example, the $105.00 strike price requires a cash reserve of $10,500.00, which equals $105.00 x 100 shares of CAT. (Each option contract corresponds to 100 shares of the underlying stock)

In these August 2012 put options trades, each lower strike price gives you a lower break-even, but also has a lower option premium. So, you have to decide how aggressive to be – should you “nibble at the edges”, and sell put options further out of the money for a lower break-even, such as the $97.50 strike price below, OR, be more aggressive, and sell at a strike price closer to a stock’s current price, such as the $105.00 strike?:

CAT-PUTS-1-19-12

(Note: You can find more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

Financials: CAT’s mgt. efficiency ratios are higher than its peers’. CAT’s Debt/Equity ratio is higher, but it has an Interest Coverage ratio of 5.9:

CAT-ROE-1-19-12

Valuations: Although CAT’s Price/Book is much higher than its peers, it appears undervalued on a PEG basis, and has enjoyed solid growth during its most recent quarter and fiscal year. CAT is due to give its earnings report on Jan. 26, 2012.

CAT-PEG-1-19-12

Disclosure: Author is short CAT put options.

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

Tags: best stocks to buy in 2012, call options, cash secured puts, cat, caterpillar, covered calls, dividend stocks, dividends, highest options yields, put options
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Hollywood Dividend Stocks With High Yields And Growth

January 13th, 2012

Whether its theme parks, movies, or TV – we all love to be entertained, and modern society rewards greatly those who entertain us. This week we’ve found 3 dividend stocks which profit handsomely from the endless demand for entertainment. These may be some of the best stocks to buy in 2012 for undervalued growth and income within the Entertainment Industry:

DIS-TWC-VIAB-DIVS

Valuations: Compiling meaningful Industry Avgs. is complicated for these companies – although they all operate within the Cable TV industry, Disney and Viacom also are active in the film industry.

Viacom and Time Warner Cable both look very undervalued on a Next Fiscal Year PEG basis, (P/E dividend by EPS Growth), while Disney is close to the 1.00 undervalued PEG threshold. TWC also looks undervalued on a cash basis – its Price/Free Cash/Share is only 3.15 vs. the 10.05 industry avg.

DIS-TWC-PEG

High Options Yields: These firms have modest to avg. dividend yields, but by using options, you can achieve much higher yields, as seen below.

Covered Calls: Disney’s next annual ex-dividend date isn’t until December, but you can create a much higher “virtual” dividend by selling covered call options, plus, you won’t have to wait until December to get paid – option sales are credited to your account within 3 days of trading, often the same day. However, unlike qualified dividends, which receive a 15% tax treatment, options are taxed as short term capital gains.

The TWC and VIAB call options now yield over 4 to 6 times the amount of their dividends over the 5-6 month period for these trades. (The call and put options listed for Disney and Time Warner expire in July, and those listed for Viacom expire in June.)

You can see additional info on over 30 high yield Covered Calls trades that we’ve discussed in recent articles in our Covered Calls Table.

DIS-TWC-CALLS

Cash Secured Puts: What can you do if you’d like to own a stock, but you feel that the stock’s price is too high? You can sell cash secured puts at or below the stock’s current price, get paid your put premium $ now, and have a lower break-even – essentially, you’ll get paid to wait.

If you want to be more conservative, you could sell put options at strike prices even further below a stock’s current price and get an even lower break-even. The catch is that the further “out of the money” you sell, the less put premium $ you’ll receive. The key with selling cash secured puts is to only sell puts on a stock that you’d like to own, so that, even if the stock gets assigned/put to you, you end up owning it at a price you’re comfortable with.

Some options skeptics argue that, if you just wait for a market pullback, you can end up owning the stock cheaper anyway. This may or may not happen, but meanwhile you wouldn’t receive any income by just waiting.

TWC’s puts have a break-even closest to its 52-week low. Similar to the call options, these put options pay 4 to 7 times the dividend payouts during this term:

DIS-TWC-PUTS

(Note: You can find more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

Financials: TWC’s Debt/Equity ratio of 3.5 is higher than the industry avg. of 2.16, but its 1.44 Current ratio is better than its industry peers’ 1.06. Viacom has the best ratios of this group:

DIS-TWC-ROE

Performance: Although DIS and TWC are just about flat for the past 12 months, they’ve gathered momentum in the past month. VIAB h,as been the most loved of the group, having made impressive gains during the past year, quarter, and month, and continues to have its fans thus far in 2012:

DIS-TWC-PERF

Disclosure: Author owns no shares at time of publication, but has always been a fan of Jiminy Cricket.

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

Tags: best stocks to buy in 2012, call options, cash secured puts, covered calls, dis, Disney, dividend, dividend payout ratio, dividend stocks, dividend yield, dividends, ex-dividend date, high options yields, put options, Time Warner Cable, twc, viab, Viacom
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3 Large Cap Tech Dividend Stocks With Double Dividends

January 6th, 2012

Searching for undervalued dividend paying stocks with strong growth? The Tech sector offers some of the best stocks to buy in 2012 for growth and dependable income. The cash-rich Tech sector gained just 1.03% in 2011, in spite of sector earnings growing by over 18%. However, Standard & Poors is projecting the Tech sector to achieve the largest 2012 EPS increase, and Tech’s P/E is also currently below its 4-year average:

SP-SECTOR-EPS

(Data Source: Standard & Poors)

3 Large Cap Tech Dividend Paying Stocks - Although Tech isn’t normally known for high dividend stocks, there are now dependable dividend stocks in this sector, including these iconic firms, all of whom sport low dividend payout ratios. Better yet, their dividend growth rate is on the rise – all 3 companies had big dividend increases in 2011- MSFT: up 25%; INTC: up 16%; IBM: up 15%.

ibm-INTC-MSFT-DIVS

Covered Calls: Want to double or triple your dividends? Selling covered call options is a strategy that allows you to vastly improve upon the dividend yields of a stock. These 3 trades have call options that pay from 3 to 11 times what the dividends pay during their approx. 3-month terms. (All options mentioned in this article expire in April 2012.) Another bonus is that you receive your option premium $ within 3 days of selling a put or call option. In fact, many brokers, such as Schwab, credit your account the same day. The covered call strategy also helps you to hedge gains in a stock that you own, as we’ve detailed in previous articles. This strategy is also used for locking in income and/or lowering risk when buying new stocks.

You can find additional details on over 30 high yield Covered Calls trades we’ve discussed in our recent articles in our Covered Calls Table.

IBM-INTC-CALLS

Cash Secured Puts: Selling cash secured puts below or close to a stock’s current price is an alternative strategy to use, if you want to buy shares below the current market price, and have a lower break-even cost. Your break-even is the difference between the put premium and the put strike price. In the table below, the break-even for MSFT is $23.65, which equals the $27.00 Put Strike Price, minus the $1.10 Put Bid Premium. As with the call options, these April put options pay many times over what the quarterly dividends pay.

(Note: You can find more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

IBM-INTC-PUTS

Valuations: MSFT and INTC both currently have P/E’s close to their 5-year low P/E’s.

INTC, however, recently warned that their 4th quarter revenue and earnings will be negatively impacted by the floods in Thailand: “The company now expects fourth-quarter revenue to be $13.7 billion, plus or minus $300 million, lower than the previous expectation of $14.7 billion, plus or minus $500 million. Sales of personal computers are expected to be up sequentially in the fourth quarter. However, the worldwide PC supply chain is reducing inventories and microprocessor purchases as a result of hard disk drive supply shortages. The company expects hard disk drive supply shortages to continue into the first quarter, followed by a rebuilding of microprocessor inventories as supplies of hard disk drives recover during the first half of 2012.” (Source: Intel website)

Will Intel regain these lost sales in the second half of 2012? Even with the supply issues, he current estimate of under 1% 2012 growth for Intel seems very low, especially since Intel has traditionally been very conservative in its earnings projections, and had 4 consecutive quarterly upside earnings surprises in 2011.

IBM’s new CEO, Ginni Romett, has already made a new acquisition, buying cloud software testing firm Green Hat. IBM also had 4 2011 consecutive earnings surprises, (low single-digits), while Microsoft had 3 much larger ones, (approx. 9% to 19%).

IBM-INTC-PEG

Financials: Although IBM carries the highest debt load, but they earn enough $ to cover their interest payments by 53 times – quite a cash machine, to say the least.

IBM-INTC-ROE

Performance: IBM and Intel both outperformed the Tech sector in 2011, but MSFT got no respect. However, MSFT is up the most so far in the first few days of 2012:

IBM-INTC-PERF

Disclosure: Author is long INTC and IBM shares, and short INTC calls at the time of publication.

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

Tags: best stocks to buy in 2012, call options, cash secured puts, covered call, covered calls, dividend growth rate, dividend paying stocks, dividend payout ratio, dividend stocks, dividend yields, dividends, double dividends, ex-dividend date, high dividend stocks, ibm, intc, msft, put options
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