3 High Dividend Stocks Going Ex-Dividend Next Week

Posted on March 21, 2013

There are several dividend stocks going ex-dividend next week, (3/25/13 – 3/3/29/13) from the Financials section of our High Dividend Stocks By Sector Tables. The following 3 stocks are mortgage Real Estate Investment Trusts, or “mREITS”, as they are popularly known. They invest in mortgage-related securities, issued by government agencies, such as Fannie Mae and Freddie Mac, and use leverage to achieve high dividend yields.

Dividends: CMO increased its quarterly dividend to $.31, from $.30, while NLY and RSO maintained their dividend payouts this quarter. RSO maintained a $.25 quarterly dividend from late 2009 through 2011, but it dropped its quarterly payout to $.20 in 2012. Prior to the housing crisis, RSO paid as high as $.41. NLY dropped its dividend payout twice in 2012, to $.55, and then to $.50, before seemingly stabilizing at $.45 in Dec. 2012.

As REIT’s, they must pay out at least 90% of their income, in exchange for paying no corporate income taxes, hence their high dividend yields. Even with the decrease in dividend payouts, these yields are still quite high:

Current Valuations: The smallest stock by Market Cap, RSO’s P/E is closest to the low end of its 5-year P/E range, but CMO is the cheapest on a Price/Book basis:

Options: Although all 3 of these stocks have options, we don’t list them in our Covered Calls Table or our Cash Secured Puts Table, due to low options yields. However, there over 30 other high yield trades in each of those free tables, which are maintained daily.

Financials: All 3 firms have similar Returns On Equity. RSO carries the least debt, and lags in Return On Investment and Interest Coverage:

Performance/Ownership: RSO has outperformed CMO and NLY in 2013, and over the past 52 weeks, partly due to its higher support from institutional and inside buyers:

Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author owned CMO and NLY shares at the time of this writing.

A Stealthy Oversold High Dividend Stock With Growth

Posted on September 21, 2012

by Robert Hauver

We live in the Age of Information, where small investors can get an amazing amount of data on publicly traded stocks, just by clicking a mouse or touching a touchpad. But sometimes, it looks like the Age of Misinformation – Espy Mfg., (ESP), is a good case in point. Many of the finance websites that list a stock’s dividend history are overlooking something significant for Espy – a big special dividend that they’ve been paying out in December since 2008.

Consequently, many sites show Espy’s dividend yield as being below 4%, when it’s actually ranged from around 8% to well over 12% since 2008. The table below simply uses the year ending stock prices to determine dividend yields, but you could check on the yearly price ranges to come up with more data. 2008 also had another special dividend in March, which hasn’t been repeated:

(ESP is listed in the Industrials section of our High Dividend Stocks by Sector Tables.)

Even Yahoo, which has Espy’s dividend history correct, shows a current yield of only 3.60%. Why are the sites listing it incorrectly? Because it’s a “special dividend”, and there’s no guarantee of it happening each year.

So, will they pay it again in 2012? The special dividend is based on financial results for the most recent fiscal year, which ends on June 30th, and capital requirements for the current year. They’ve supported their dividends by paying out 90% of earnings and also using some Retained Earnings. Management prefers to reward shareholders, by utilizing some retained earnings, instead of earning next to nothing on this excess cash.

Judging by Espy’s earnings and current record order backlog, prospects look good for another $1.00 dividend in 2012, particularly as ESP already ramped up its manufacturing capabilities last year, in order to meet increasing demand. ESP’s order backlog grew by over 31% for its fiscal year ending 6/31/12, to $50.8 million.

Earnings Growth: Using the 2 lowest past Order Backlog-to-Sales Conversion rates, and the lowest Net EPS %, we came up with a fiscal 2013 EPS range for Espy of $2.17 to $2.43:

These 2 estimates translate into a 2013 PEG ratio ranging from a very low .55, up to 1.34.

Technical Buy Signal: In addition to most likely being undervalued on a PEG and P/Book basis, ESP just crossed above the oversold line on its Stochastic chart, which is seen as a buy signal by technical analysts:

Options: There are no call options or put options available for ESP.

Financials/Valuations: Excepting ROE, Espy’s ratios outshine the Defense industry averages, and it also looks undervalued on a Price/Book basis.

Company Profile:Espey Mfg. & Electronics Corp, located in Saratoga Springs, NY, is a Power Electronics Design and Original Equipment Manufacturing (OEM) company with a long history of developing and delivering highly reliable products for use in military and severe environment applications.

Espey’s primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, ups systems, antennas and high power radar systems. The applications of these products include AC and DC locomotives, shipboard power, shipboard radar, Airborne power, ground-based radar, and ground mobile power.

Espey is on the eligible list of contractors on the United States Department of Defense and generally is automatically solicited by such agencies for procurement needs falling within the major classes of products produced by the company. (Source: Espy website)

Disclosure: Author was long ESP shares at the time of this writing.

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

3 Financial Dividend Stocks With Institutional Buying And Solid Growth

Posted on March 16, 2012

By Robert Hauver

After being the worst sector in 2011, and losing over -17%, Financial stocks are among the best stocks to buy in 2012 for price gains thus far, beating all other sectors. Even with this major turnaround, Financials are still down -2.3% over the past year:

SECR-PERF-3-15-12

Part of the recent momentum for Financials came from the Greek debt agreement being signed, and improving US economic data. Another major plus was the Fed’s mainly successful stress tests for major banks this week, but the big impetus is that this sector had much better 2011 4th earnings, even though its sales growth was flat:

SECTOR-EPS

(Data Source: Standard & Poors)

Which Financial sector dividend paying stocks are the big boys buying? It looks like some of the brokerage firms and one exchange are getting institutional support, particularly this small cap stock, Interactive Brokers, which is just -3% below its 52-week high, but only up 10.79% for the past year:

IBKR-PERF

Dividends: Although these dividend yields aren’t as high as some of the High Dividend Stocks we often write about, they all have above-average dividend yields for their industry. In addition, you can improve upon these dividend payouts dramatically by using options trading strategies, such as selling covered call options, (see further below). *CME also had a special $3.00/share dividend that went ex-dividend in March, and increased its quarterly payouts by 22%, to $1.40, from $1.15, in 2011.

IBKR-CME-DIVS

Valuations: So, why are Institutional buyers so supportive of IBKR? Many reasons: IBKR has a very low PEG ratio, outstanding yearly and quarterly EPS and Sales growth, and its Price/Book and Price/Sales valuations are way below industry averages. CME also has a low PEG, low Price/Book , and good EPS growth, but buyers are probably worried about potential future gov’t regulations for exchanges, stemming from the MF Global scandal. Schwab’s PEG is also low, but like CME, its recent quarterly sales slowed vs. Q4 2010:

IBKR-CME-PEG

Financials: All of these stocks have above-avg. industry Mgt. Efficiency Ratio and Operating Margins, and carry a lot less debt than the industry average. IBKR and Schwab go head to head in the online discount brokerage segment, but IBKR has a much higher operating margin:

IBKR-ROE

Covered Calls: If you’re looking to earn more income now from these dividend stocks, but still participate in some potential price gains, selling covered call options above the stock’s current price is one way to go. Covered Call sellers get paid an often lucrative call premium now, in return for committing to potentially have to sell the underlying stock at a given strike price by expiration time. (Each option contract corresponds to 100 shares of the underlying stock.)

If you’re more bullish on a stock, you’d sell covered call options further above its current price/share, but you’ll give up some immediate call option $ now for potential future price gains down the road. In all of the trades below, the call option premiums are up to 7 times the dividend payouts. (Annualized potential assigned yield equals the difference between the strike price and the stock’s share price, divided by the share price.)

The Annualized Total Potential Assigned Yields listed below are comprised of 3 income streams. The $ amounts for CME are:

1. Dividends: $2.80/share, ($280.00 per option contract sold). You’d collect 2 quarterly $1.40/share dividends.

2. Call option premiums: $18.80/share, ($18.80 per option contract sold). You’d get paid this $ within 3 days of selling the call options, often even the same day.

3. Potential Assigned Price Gains: $3.75/share, ($375.00 per option contract sold). This usually occurs at or near expiration time.

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

IBKR-CALLS

Cash Secured Puts: SInce these stocks have rallied so much in 2012, you may wish you could turn back the clock and dive in at a lower price. One way you can do this, is by selling cash secured put options at a strike price below the stock’s current price. You’ll be paid a put premium that is often much higher than the stock’s dividends over the next 2-3 quarters, in return for committing to buy the stock at the put strike price. For example, in the 2 put trades below, these puts pay over 7 to 9 times what the dividends pay. (We listed the dividends for comparison sake only – put sellers don’t receive dividends.)

In the SCHW trade below, you’d be paid $1.10 for committing to potentially buy SCHW at $15.00 by Sept 22, 2012, if SCHW’s price goes below $15.00 at or near expiration time. But, if you end up buying SCHW at $15.00, your cost will only be $13.90, (the $15.00 strike price, less the $1.10 you were paid for selling the put option.

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

CME-SCHW-PUTS

Company Profiles:

Interactive Brokers (IBKR): Over the last 35 years, IBKR has grown internally to become one of the premier securities firms with over $4 billion in equity capital following payment of a special cash dividend of approximately $1 billion pre-tax.

Interactive Brokers conducts its broker/dealer and proprietary trading businesses on over 90 market destinations worldwide. In its broker dealer agency business, IB provides direct access (“on line”) trade execution and clearing services to institutional and professional traders for a wide variety of electronically traded products including stocks, options, futures, forex, bonds, CFDs and funds worldwide. In its proprietary trading business, IB engages in market making for its own account in about 6,500 different electronically traded products. Interactive Brokers Group and its affiliates execute nearly 1,000,000 trades per day. (Interactive Brokers was named #1 online broker again in 2011 by Barron’s.)

CME Group (CME): An exchange which builds on the heritage of CME, CBOT, NYMEX and COMEX, CME Group serves the risk management needs of customers around the globe. CME provides the widest range of benchmark futures and options products available on any exchange, covering all major asset classes.

Charles Schwab (SCHW): Launched in April, 1971, as First Commander Corporation, to conduct a conventional broker-dealer securities business and publish the Schwab investment newsletter, Schwab grew to become one of the leading discount brokerage firms, focusing on individual investors.

Disclosure:

Author holds no shares of any stocks mentioned in this article at this time.

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

3 High Dividend Stocks With Strong Growth And High Options Yields

Posted on February 17, 2012

By Robert Hauver

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.

3 Large Cap Tech Dividend Stocks With Double Dividends

Posted on January 6, 2012

By Robert Hauver

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.

2 Defensive Dividend Stocks Outperforming The S&P

Posted on December 16, 2011

By Robert Hauver

Looking to play defense in the market? As the market has vacillated between up and down months since July, income investors are seeking dividend paying stocks with less correlation-i.e., dividend stocks which are defensive during pullbacks, but still share in rallies. It has become more challenging to find such an animal, but they are out there. However, defensive stocks aren’t always the best stocks to buy for growth. These two giant Healthcare dividend stocks, Lilly and Pfizer, have both outperformed the S&P in 2011, in both up and down markets:

LLY-pfe-perf

Performance-wise, LLY and PFE flip-flopped in the Sept. and Nov. pullbacks and the Oct. rally. Lilly just got a nice boost recently, after an analyst said that LLY’s anti-Alzheimer drug could double the share price, if proven to be effective, which he thought it had a 10-20% chance of.

Dividends:

LLY-PFE-DIVS

Financials: Lilly’ metrics outshine Pfizer’s, and also its Big Pharma peers.

LLY-PFE-ROE

Options: The put and call options trades listed in this article expire in April for LLY, and March for PFE.

Covered Calls: Although Lilly and Pfizer’s don’t have high option yields when compared to other stocks we’ve covered recently, such as CAT or CMI, both of the options trading strategies listed here give you a chance to significantly improve upon these stocks’ dividend yields over this 4-5 month period.

(You can find more details on these and more than 30 high yield covered calls in our Covered Calls Table.)

LLY-PFE-CALLS

Cash Secured Puts: LLY’s put options offer more yield than PFE’s. Since PFE and LLY have made 17% to 20%-plus gains year-to-date, selling cash secured puts below the current stock prices might be the most conservative approach you could take in potentially accumulating shares. (Note: Put sellers don’t receive dividends.)

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

LLY-PFE-PUTS

EPS/Valuations: Due to issues with patent expirations, the future sales forecasts are sub-par for LLY and nearly flat for PFE. As we mentioned earlier though, there’s a trade-off between growth and defense in these stocks.

LLY-PFE-EPS

Disclosure: Author has no positions in LLY or PFE at the time of publication.

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

3 Solid Industrial Dividend Stocks With High Options Yields

Posted on December 9, 2011

By Robert Hauver

In last week’s article, we showed that the Industrial sector has the 2nd best record for beating & meeting 3rd quarter earnings estimates. It also has the 2nd highest EPS growth estimate for the next fiscal year, trailing only Tech. This week we searched for additional attractive dividend paying stocks in the Industrials sector, focusing on finding the best stocks to buy for growth, valuation, financial metrics, and high options yields:

ETN-ITW-TYC-DIVS

Covered Calls: Although these aren’t high dividend stocks, you can easily earn a much higher overall yield from them, by combining their dividends with high call options yields.

These call options pay up to 11 times more than the dividends during these 4-5 month trades.

The Static Yield refers to the combination of the call option and dividend yields, which represents your total income if the underlying stock isn’t If the stock doesn’t rise above the call strike price at or near expiration. The Total Potential Yield includes the potential price gain that you’ll realize if the stock’s price does rise above the call strike price. For example, for ETN, you’d receive an additional $1.07/share, if the stock rises above $45.oo and gets assigned/sold away from you at expiration.

(You can see more details on these and more than 30 other high yield covered call trades in our Covered Calls Table.)

ETN-ITW-CALLS

Cash Secured Puts: This is a more conservative approach to take: Sell cash secured puts at a strike price below the stock’s current price, so you achieve an even lower break-even price.

As an example, selling ITW $45.00 March put options gives you a $42.20 break-even, which is approx. only 8% above ITW’s 52-week low, as opposed to being over 18% above its low, where it was at the time of publication.

Of course, there’s no guarantee that the stock won’t ge lower than your break-even price, but using this put strategy will decrease your risk more than if you’d just bought the stock outright. As with the call options, there’s a big payoff disparity between the quarterly dividends and the options in these put trades, with put option premiums that are as high as 12 times the dividends.

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

ETN-ITW-PUTS

EPS: The EPS growth for the most recent fiscal year, quarter, and next fiscal year looks solid for all of these stocks:

ETN-ITW-EPS

Valuations: All of these firms have low Price/Sales and Next Year PEG’s that are right around the undervalued threshold of 1.00.:

ETN-ITW-PEG

Financials: These firms’ all have low debt loads, and their mgt. ratios are generally in line or better than their peers.

ETN-ITW-ROE

Technical Data: As their Relative Strength is in the low 50′s, all 3 stocks are in the neutral, “not oversold/not overbought” region.:

ETN-ITW-BETA

Company Profiles:

Eaton (ETN): Founded in 1911, Eaton is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuels, hydraulics and pneumatic systems for commercial and military use; plus truck and auto drive-train and power-train systems for performance, fuel economy and safety. Eaton has approx. 73,000 employees and sells products in over 150 countries.

Illinois Tool Works (ITW): Another multibillion dollar firm with nearly 100 years of history, ITW designs and manufactures fasteners and components, equipment and consumable systems and a large array of specialty products and equipment for its worldwide customer base. ITW owns more than 840 small businesses, which are decentralized, and operate in various markets, such as: industrial packaging, power systems/electronics, food equipment, and construction products, among many others.

Tyco Int’l (TYC): Tyco is a leading provider of security products and services, fire protection and detection products and services, and industrial valves and controls. Tyco had 2011 revenue of more than $17 billion and has more than 100,000 employees worldwide. Tyco owns the dominant US residential security firm, ADT.

Disclosure: Author has no positions in ETN, ITW, or TYC at the time of publication.

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

2 Easy Ways To Earn 20% On Industrial Dividend Stocks

Posted on December 2, 2011

By Robert Hauver

Although Industrials are down approx. -4% year-to-date, this sector may hold some of the best stocks to buy moving forward. Standard & Poor’s ranks Industrials as #2 in projected EPS growth for 2012, right behind Tech, which gives it the 3rd lowest PEG ratio for 2012:

S&P-EPS-Q3

(Data source: Standard & Poors)

Thus far, 86% of S&P 500 Industrials have beaten or met their Q3 2011 Earnings Estimates, 2nd only to Tech.

S&P-EPS-BEAT-Q3-'11

(Data source: Standard & Poors)

Although this sector looks attractive, finding undervalued high dividend stocks here with strong metrics is still a challenge. A different approach would be to look for a lower-yelding dividend paying stocks, that have stronger growth and financials, and then utilize options to ramp up the dividend yields on these dividend stocks. Both Caterpillar and Cummins have less-than-avg. dividend yields, but you can greatly improve upon their dividends by selling options.

CAT-CMI-DIVS

Covered Calls: Take a look at the big difference between these high option yields and the dividend yields during these 6-7 month trades.

CAT’s call options pay over 9 times their dividends, while CMI’s pay over 15 times.

(The call and put options listed in this article for CAT expire in May, and those for CMI expire in June.)

(You can find more details on this and more than 30 other high yield covered call trades in our Covered Calls Table.)

CAT-CMI-CALLS

Cash Secured Puts: Another proven tactic is selling cash secured puts below the stock’s current share price, in order to achieve an even lower break-even price. The put trade listed here for CMI has a break-even only 3% above CMI’s 52-week low. These put options pay 9 to 16 times more than the dividends in these trades.

Your broker will secure a cash reserve in your account, equal to however many put contracts you sell, times the strike price of the put you sell. This amount is released once the puts expire or the trade is closed. Hence the term, cash secured puts. You’ll get paid for any puts and calls that you sell within 3 days of the trade, often even the same day. Note: put sellers don’t receive dividends, but call sellers do.

The best time to sell cash secured puts is normally when the stock is at the lower part of its range, which will give you an even lower break-even. Both CAT and CMI are higher-beta stocks, which fluctuate widely with the market, so check out their put prices during the next pullback. If you need to be even more conservative, you could also sell cash secured puts at a strike price further below the current share price. This will give you a lower premium, but a lower break-even also.

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

CAT-CMI-PUTS

EPS/Sales Growth: Both CAT and CMI had strong EPS growth in their most recent fiscal years, and also strong sales and EPS growth in their most recent quarter:

CAT-CMI-EPS

Valuations: CAT’s PEG for its next fiscal year is very low, while CMI’s is consistent with the sector’s .87 PEG. CAT’s Price/Book and Price/Sales are consistent with its industry, while CMI’s Price/Book is a bit higher than its industry avg. of 2.58, but its Price/Sales is lower than the avg. of 1.30

CAT-CMI-PEG

Financials: Although CAT carries a heavier debt load, its interest coverage ratio is 5.9x.

CAT-CMI-ROE

Disclosure: Author is short puts on CAT and CMI.

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

The Best Defensive Dow Dividend Stocks To Buy

Posted on November 25, 2011

By Robert Hauver

In spite of over 75% of S&P 500 firms beating or meeting earnings expectations, the Eurozone debt crisis, a slow US economic recovery & the continuing DC stalemate on economic issues, plus slower growth in China are combining to scare investors into a “risk off” position in November. The market has pulled back -9.59% this month, nearly as much as the Sept. selloff, as each of the last 5 months have alternated between rallies and pullbacks.

If you’re an income investor looking for which Dow dividend stocks have been the best stocks to buy in recent months for income and defense, these 3 dividend stocks have all sold off less during these 2011 pullbacks, and have also participated nicely in the rallies. (The only exception is HD’s pullback during the July rally.) They’ve also declined even less in this most recent pullback, (Oct. 28 through Nov. 23, 2011), than in the previous Sept. pullback.

HD-KFT-MCD-PERF

Valuations: HD appears to be the most undervalued stock, on a recent and future EPS growth basis. This seems logical, as HD suffered mightily during the downturn, and homeowners still have to fix their homes eventually. HD’s Price/book is higher that the Home Improvement industry avg. of 2.24, but HD’s very low .83 Price/Sales ratio is in line with industry avgs.

HD-KFT-MCD-PEG

High Options Yields can lower your risk and pump up your dividend yields: Although they’re defensive stocks, MCD and HD have options yields which can help you to turn them into virtual, short-term high dividend stocks.

Covered Calls: If you want to buy these defensive dividend stocks, but gain some downside protection, in the form of a quick “rebate”, selling covered call options is one way to go. In these 2 call option selling trades, you’ll get paid over 6 times the dividend amount now, when you sell call options against the underlying shares.

Selling covered calls allows you to realize some of the stock’s upside potential immediately, and turn a 3% annualized dividend yield into a 15% – to – 23%-plus overall yield. The rub is that you’re committing to sell the stock at the option strike price, even if the stock rises far beyond that price by the Feb. or March expiration date. But if you think the stock and the market will stagnate or swing back and forth during that time period, selling covered calls is a proven way of hedging your bet.

(These call options expire in March for MCD, and expire in Feb. for HD.)

(You can see more details on this and over 30 other high yield covered call trades in our Covered Calls Table.)

HD-MCD-CALLS

Cash Secured Puts: If the recent monthly market reverses have your head spinning , and you want to be more conservative, another strategy is to sell cash secured puts at a strike price below a stock’s current price. This usually offers you an even lower break-even price, which lowers your risk even more, and improves your cash flow, since you’ll get paid put option premiums within 3 days of the trade, (often the same day), instead of waiting for quarterly dividends. (Unlike covered call sellers, put sellers don’t collect dividends.)

Your broker will hold in reserve an amount equal to the value of the strike price times 100, for every put contract that you sell, until the contract expires, or the position is closed out. Each options contract corresponds to 100 shares of the underlying stock.

These put options pay approx. 7 to 8 times more than the stocks’ dividends during this 3-4 month period.

The put options below also expire in March for MCD, and expire in Feb. for HD.

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

HD-MCD-PUTS

Financials: KFT’s Mgt. efficiency ratios are the weakest in the group, and are also below their peer group avgs, while MCD and HD both have above/avg. ROE and ROI for their peer industries.

HD-KFT-MCD-ROE

Technical Data: As usual with defensive stocks, these equities all have low beta’s. MCD and HD are still over 30% above their 52-week lows, but selling the put options listed above would give you a break-even that’s only 19% above MCD’s low, and 21% above HD’s low:

HD-KFT-MCD-BETA

Disclosure: No positions at this time.

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

3 Tech Dividend Stocks Leading The Market

Posted on October 14, 2011

By Robert Hauver

In terms of dividend stocks that are outperforming the market, the Tech sector offers some of the best stocks to buy in 2011 for share performance. Tech has outperformed all other sectors over the last month, and is also among market leaders for the past trading quarter: (Performance through 10/13/11. Month = 21 trading days; Week = 5 trading days; Quarter = 63 trading days)

These 3 stocks had the best performance for dividend paying stocks in the Tech sector for the 5 trading days through 10/13/11, and have also outperformed the S&P 500 in the past quarter, month, and year-to-date:

KLAC-LLTC-PERF

The Tech sector may not be renowned as a pocket of high dividend stocks, but Tech firms are quickly realizing the market value of paying dividends.

In fact, this sector has raised its overall dividends by over 35% thus far in 2011, lagging only the Financials and Materials sectors for dividend increases. (The hated Financial sector had the biggest decrease in dividends during the crisis, and has been accelerating its dividends recently, as banks are once again are able and are allowed by the gov’t. to pay dividends):

SP-Q3Divs

Dividends: These 3 firms all have dividend yields far above the Tech sector average, a low dividend payout ratio, and have increased their dividends in 2011:

KLAC-LLTC-INTC-DIVS

High Options Yields: As we’ve noted recently, market turmoil has increased volatility, which continues to raise options prices, much to the benefit of sellers of covered call options and put options.

(The trades listed below are all based on options which expire in Jan. 2012.)

You can find more details on this and over 25 other high yield covered call trades in our Covered Calls Table.

Covered Calls: These call options pay up to nearly 10 times as much as the quarterly dividends over this 3-month period.

KLAC-LLTC-CALLS

Cash Secured Puts: Want to be more conservative? You can sell cash secured put options at a strike price below the current share price and achieve a lower break-even, in addition to getting paid almost immediately, as opposed to waiting for quarterly dividends. (Online brokers must credit options sales to your account within 3 days after the trade, and they often credit the cash immediately after you make a trade.) As you can see below, KLAC’s put options pay 10 times their quarterly dividend.

There are more details on this and over 25 other high yielding cash secured put trades in our Cash Secured Puts Table.

KLAC-LLTC-PUTS

Valuations: LLTC looks undervalued on a PEG basis, but its Price/Book is far above the industry avg. of 2.72. LLTC did, however, increase its tangible book value/share from only $.20 in 2009, to $2.20 in 2010. As we’ve noted recently, Intel’s 3.40% growth forecast for its next fiscal year may well be too modest, giving it too high of a near-term PEG:

KLAC-LLTC-PEG

Financials: These firms are all above their industry avgs. for mgt. efficiency ratios and operating margins . KLAC and INTC’s debt loads are also less than industry avgs., while LLTC’s debt/equity ratio is way above its peer avg. of just .24.

KLAC-LLTC-ROE

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

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