By Robert Hauver
If you’re looking for undervalued dividend paying stocks in the Tech sector, you may want to consider Linear Technology, (LLTC), a firm which designs, manufactures and markets integrated circuits in the Specialized Semiconductor sub-sector. A recent addition to the Tech section of our High Dividend Stocks by Sector tables, LLTC currently has a 3.26% dividend yield, paying $.23/share quarterly. You can also increase your yield on LLTC, via options trading strategies, such as selling covered calls or selling put options.
LLTC fares well in our Industry Comparison table:
LLTC also offers investors strong prospects for growth. In April, LLTC reported a 100% increase in net income of $.44/share, and a 55% jump in revenue. Forbes reports that, LLTC’s “trailing 12-month earnings have already replicated its best ever four consecutive quarters”…”subsequent comparisons will necessarily moderate, but likely sustain 25 % to 30% or even higher rates of growth through 2012.” Indeed, using a baseline valuation method, even using a much lower growth rate of 15%, indicates an intrinsic value of $49.36.
Using the current consensus 2011 growth rate of 31% shows a PEG of just .74 for LLTC, which would also indicate that it’s undervalued.
More defensive, income-oriented investors may wish to hedge their bets on LLTC by selling covered calls. However, they may miss out on a substantial upside gain.
Our Covered Call table lists the Jan. 2011 $30.00 call, which had a bid today of $2.20, an 11.5% annualized yield. In addition, covered call sellers should receive two dividend payments of $.23/quarter prior to the Jan. expiration, for a total payout of $2.66/share.
The total static yield on this 8-month trade would be 9.4%, or 13.9% annualized. The breakeven on this covered call trade is $25.52.
The potential assigned yield offers an additional $1.06/share, (3.79%), which could increase your total potential assigned yield to 13.29%, or 23.40% annualized.
Alternatively, if you wanted an even lower break-even point, you could sell cash-secured put options. Our Covered Puts table currently lists the Jan. 2011 $25 put, which was bid at $2.05 today, for an 8.2% yield in 8 months, or 12.07% annualized.
This would give you a $22.95 breakeven, which makes LLTC’s $.92/share dividend equate to a 4.1% yield. (These put-selling yields are based upon 100% cash reserve.) LLTC closed today at $28.18.
Disclosure: No positions at this time.
Disclaimer: This article is written for informational purposes only.