How To Grab A Fast Double-Digit Yield From This Dow Dividend Stock

Posted on May 1, 2013

by Robert Hauver
Dow dividend stock IBM, (IBM), is going ex-dividend next week, on 5/8/13:

IBM dipped below $200.00 again today, 5/1/13, which sets up a high yield, short-term covered call trade:

There are 3 potential income scenarios to this 2-week trade, all of which pay you at least a $2.08/share call option premium:
1. Static – IBM’s share price isn’t above $200.00 at or near expiration, and your IBM shares don’t get assigned/sold. You receive the $2.08 call premium and the $.95 dividend.
2. Assigned before the ex-dividend date- IBM’s share price is above $200.00 before 5/8/13, and your IBM shares get assigned/sold. You receive the $2.08 call option premium, and the price gain of $.37, but not the $.95/share dividend.
3. Assigned after the ex-dividend date- IBM is above $200.00 after 5/8/13, and your IBM shares get assigned/sold on or near the 5/17/13 expiration date. You’d receive the $2.08 call option premium, the $.95/share dividend, and the price gain of $.37:

You can see more details for this and over 35 other high yield options trades in our free Covered Calls Table.

Cash Secured Puts: We also list a short term put-selling trade for IBM which offers a 13.5% annualized yield, in our free Cash Secured Puts Table.

Earnings: IBM got beaten up after its most recent quarterly earnings report disappointed – revenue fell 5%, and diluted normalized EPS fell 7.2%. However, the 15% earnings estimates for 2013 are still strong enough to give it an undervalued 2013 PEG ratio:

Financials: Although it has more debt, IBM’s Mgt. Efficiency ratios are very superior to its peer industry’s averages. This cash cow also has an Interest Coverage ratio of over 35., and also has a 5-year Dividend Growth Rate of over 17%.

Other Valuations: Like many Dow dividend stocks, IBM commands a premium Price/Book value vs.its peers:

Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was short IBM put options at the time of this writing.

These 2 High Dividend Stocks Go Ex-Dividend Next Week

Posted on April 25, 2013

by Robert Hauver

There are 2 dividend stocks from our High Dividend Stocks By Sector Tables, which go ex-dividend on 5/1/13: Calumet Specialty Products Partners, LP, (CLMT), and PAA Natural Gas Storage, (PAA).

CLMT is a refiner and processor of specialty hydrocarbon products, and operates six plants including operations in Northwest Louisiana, Pennsylvania, Texas and Illinois.

PAA’s business consists of the acquisition, development, operation and commercial management of natural gas storage facilities. Although PAA is listed as a Gas Utility stock on financial websites, it’s actually more of an Energy-related stock.

PAA owns and operates 3 natural gas storage facilities located in Louisiana, Mississippi and Michigan. PAA’s customers include electric utilities, local distribution companies, pipelines, natural gas producers, LNG importers, aggregators, marketers, and industrial and commercial end use customers.

Valuations: Both of these stocks are closer to the low end of their 5-year P/E range – (PNG went public in 2010, so there’s less history for it than for CLMT.)

Dividends: CLMT has a very impressive 51% dividend growth rate over the past 5 years, having raised its quarterly distributions from $.45 in 2008-2009, up to the current new $.68 payout. In fact, CLMT’s frequency of rate hikes has also increased – they raised their distributions 3 times in 2011, and 4 times in 2012, and just raised it again in the 1st quarter of 2013, to $.68 from $.65. After its 2010 IPO, PNG raised its distribution from $.21 to $.34, and then from $.35 to $.36 in 2011, where it remains currently:

Performance: Both stocks have had a strong run over the past year, especially CLMT.

Options: Although both stocks have options available, at present CLMT’s are much more compelling, particularly its cash secured puts. This strategy would make sense in light of the 93% price gains CLMT has had. This put trade offers you a 15%-plus annualized yield, and a breakeven that’s 11.55% below CLMT’s share price.

You can see more details on this and over 35 other high options yields trades in our free Cash Secured Puts Table.

If you’re also interested in selling Covered Calls, we maintain a free Covered Calls Table, which also has over 35 high yield trades.

Financials: Except for its heavier debt load, CLMT’s ratios look stronger vs. its industry than PNG’s do. CLMT has an Interest Coverage ratio of 1.64. PNG has a much higher Operating Margin than its peers, and most of its ratios are in line with its industry’s averages:

Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author had no positions in CLMT or PNG at the time of this writing.

Can This High Dividend Stock Maintain Its 18% Dividend Yield?

Posted on April 10, 2013

by Robert Hauver

Looking for high dividend stocks? Our search for interesting dividend stocks has uncovered a refining/retailing/pipeline stock with one of the highest dividend yields in the market: Northern Tier Energy, (NTI), is a combination refining/retailing company, based in St. Paul, Minnesota, near the booming Bakken shale play in the Midwest.

NTI’s ability to source Bakken light sweet crude and Western Canadian heavy crude, gives it a big advantage as a refiner, since both of these sources are cheaper than West Texas Intermediate crude. NTI owns one of only two refineries in Minnesota and one of four refineries in the Upper Great Plains area within the PADD II region.

In addition to refining, NTI also has a ready sales outlet for its refined products, as it owns 166 convenience stores under the SuperAmerica brand and also supports 68 franchised convenience stores, mainly in Wisconsin and Minnesota. NTI also owns various storage and transportation assets, including a light products terminal, a heavy products terminal, storage tanks, rail loading/unloading facilities and a Mississippi river dock.

The refining business also includes a 17% interest in the Minnesota Pipe Line Company, which owns and operates the Minnesota Pipeline, a 455,000 bpd crude oil pipeline system that transports crude oil (primarily from Western Canada and North Dakota) for approximately 300 miles from the Enbridge pipeline hub at Clearbrook, Minnesota to the refinery. The Minnesota Pipeline has historically transported the majority of the crude oil used and processed in the refinery. (Source: NTI website)

Dividends: Since its IPO in July 2012, NTI has paid 2 distributions: $1.48 on 11/29/12, and $1.27 on 2/28/13. Projecting their most recent $1.27 distribution forward for 3 more quarters gives NTI a very high dividend yield of 18.55%!

Here’s the million $ question: Will NTI maintain this level of dividends? The following may offer a clue for the upcoming May distribution:

In the 1st quarter of 2013, the avg. retail gasoline price was $3.55, better than 4th quarter 2012. If you use 37% as a projected ratio of distribution paid to avg. retail gasoline price, this would indicate a potential May payout of $1.31. Of course, this is a very rough estimate, and it could be derailed by other factors – NTI’s refining margins may have shrunk in the 1st quarter, or mgt. may decide to utilize more of its cash for infrastructure expansion investments. NTI stated in a recent investor presentation that it “plans to invest in logistics operations targeting trucking, terminal and pipeline assets.”

Given this uncertainty, and NTI’s big 88% rise since its IPO, what should you do?
Options: Here’s what we did, (so far). We sold puts below NTI’s share price, to lower our breakeven, in case the stock price falls, if NTI cuts its May distribution. This trade projects the same quarterly distribution of $1.27 in May and August. Coincidentally, the Sept. 2013 $25.00 put pays $2.50, which nearly matches this projected payout. (Note: put sellers don’t receive dividends.) You can find more details on this and over 30 other put trades in our free Cash Secured Puts Table.

Covered Calls: Alternatively, you could buy NTI and sell covered calls to hedge your bet. This would pay you less option $ up front, but allow you to participate in future distributions and potential price gains.
This trade, from our Covered Calls Table, offers a $1.60 call premium, plus the potential for $2.61 in price gains, ($30 call strike minus $27.39 share price). You’ll also receive NTI’s next distributions, unless NTI rises above $30 before the ex-dividend dates, and your shares get assigned/sold. NTI should announce its next distribution sometime around May 13th.

Earnings: NTI looks very undervalued on a 2013 PEG basis, but analysts are projecting much less growth for 2014. However, given its ability to pay very attractive distributions thus far in its short history, even if NTI just keeps its yield in the “double-digit realm”, its dividend yield should continue to attract investors, and support its share price in the future.

Financials: NTI’s ratios look better than its peers so far. It does carry more debt, but it has sufficient Interest Coverage and a strong Current Ratio:

Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was short NTI put options at the time of this writing.

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 Tech Dividend Stock With Undervalued Growth

Posted on January 5, 2013

by Robert Hauver

Looking for Tech dividend stocks with growth in 2013? Many investors have taken note of the fact that the Tech sector grew its dividends fastest of any sector in 2012. Couple this with the potential for earnings growth in this sector, and it makes for a compelling dividend hunt.

We found a Tech stock which not only pays a regular dividend, but also recently paid a special dividend, and has a low PEG ratio for its upcoming fiscal year.

Founded in 1982, Maryland-based Tessco, (TESS), services organizations responsible for building, using and maintaining wireless broadband systems. It offers many different product lines, including base station infrastructure, installation test/maintenance, network systems, and mobile devices/accessories.

TESS is a micro-cap stock, with a $195 million market cap, and is listed in the Tech section of our High Dividend Stocks By Sector Tables, after the firm’s special dividend doubled its dividend yield.

Earnings: Tessco’s fiscal year typically ends at the end of March, so, even though the chart below shows much better growth in 2014 than 2013, Tessco’s 2014 fiscal year will begin soon, in April 2013:

TESS also had good growth in its most recent quarter, and a low .75 5-year PEG ratio. Using the 15% 5-year growth figure and a risk-adjusted discount rate of 10.89%, gives a $39.27 estimated value for TESS, which closed this week at $24.24:

Dividends: TESS did the right thing by its shareholders, by declaring a special dividend of $.75, when nobody knew what US dividend tax policy would be in 2013. With its low debt load, the company had the cash to do this. TESS has paid dividends since 2009, and has nearly tripled its quarterly payouts since then, going from $.0667, to the current $.18/quarter.

Unfortunately, TESS isn’t listed in our Covered Calls Table, or our Cash Secured Puts Table, as there are no options available for it at present.

Financials: Although TESS works on slimmer margins, this should be improving soon, as it is transitioning from a low margin business with a major Tier 1 carrier, to more profitable business elsewhere. Its management efficiency ratios and debt load look favorable vs. its industry’s averages:

Performance/Technical Data: TESS had quite a run in 2012, and is also up 8.7% for the first 3 trading days of 2013. This stock should be a good one to add to your watch list, and buy on the dips that will most likely happen when our pals in DC start doing the debt ceiling tango in a few weeks.

Disclosure: The author was long TESS shares at the time of this writing.

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

The Strongest Dividend Growth Sector In 2012

Posted on November 29, 2012

by Robert Hauver

Up until the 2008 market crash, the financial sector was one of the dividend kingpins of the S&P 500, contributing over 20% of all dividends for the index. However, in 2009, this sector’s contribution shrank to only 9%, and even dipped below that in 2010. In 2012, the financial sector has contributed 12.54% thus far.

Meanwhile, the tech sector has kept expanding its amount of dividend paying stocks, which now stands at 56% and has the largest contribution of dividends to the S&P 500 in 2012:

Which tech firms represent these new dividend stocks? We’ve listed below the four new payers for 2012, and then the stocks with the highest dividend increases:

Click to enlarge images.

Here’s how these stocks compare for earnings growth, ranked by estimated PEG for their next fiscal year:

As is often the case, Apple (AAPL), by virtue of its low P/E and strong growth, is at the top of the list. However, Visa (V) is also an interesting growth story due to its 2012 earnings being skewed downward by a big one-time litigation settlement.

On an adjusted basis, Visa’s P/E is around 23.66 vs. the 46- 79 range some of the financial websites are reporting. In addition, unlike Nvidea (NVDA), which has underperformed in 2012, Visa has a strong defensive element — it has done well in rallies and in pullbacks:

Options:

With its 44% gain this year, you may want to wait for Visa to dip in price before diving in. At present, it looks overbought on its stochastic chart.

An alternative strategy for capitalizing on the next price dip would be to sell cash secured puts below Visa’s stock price, which will offer you immediate income and a lower breakeven price. Here’s a comparison of two put trades for Visa, which illustrates the difference in actual put option premium money received, their respective annualized yields, and breakevens.

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

Disclosure: I’m long V, via being short V put options.

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

A Defensive Dividend Stock That’s Beating The Market This Fall

Posted on November 7, 2012

by Robert Hauver

Wondering where to hide out for the rest of the year? What with Mario Draghi reminding the world of Europe’s problems, (as if we’d forgotten), and post-election profit-taking sending the S&P down 2.37% in one day, defensive dividend stocks are looking more and more attractive. Here’s an old familiar name that’s been bucking the fall pullback, and only fell .41% during Wednesday’s big sell-off.

Dr. Pepper Snapple Group, (DPS), has beaten the market since the September 14 highs, and also has done well during the summer rally. and during the spring pullback. Year to date, it has kept pace with the S&P, with a whole lot less drama:

Dividends: Since its spinoff in 2008 from Cadbury Schweppes, DPS has more than doubled its annualized dividend payouts, starting with its first quarterly $.15 dividend in December 2009, to its present $.34 level:

Earnings Valuation: DPS isn’t an undervalued high growth story. Indeed, its 2013 PEG and 5-year PEG are high, and its P/E sits above the median level of its 5-year P/E range:

You also can’t make the case for it being undervalued on a Price/Book or Price/Sales basis, vs. its peers:

Financials: However, it does have better Management Efficiency ratios, and a much higher Operating Margin than industry averages. Its debt load is higher, but it also has a higher Interest Coverage figure:

With its low beta, DPS doesn’t currently have enough volatility to offer high options yields, like some of the other dividend stocks we’ve covered in recent articles, but it looks like it can offer you some stability in these uncertain times.

Profile: Dr Pepper Snapple Group Inc. is an integrated refreshment beverage business, marketing more than 50 beverage brands throughout North America. In addition to its flagship Dr Pepper and Snapple brands, the company’s portfolio includes 7UP, Mott’s, A&W, Sunkist Soda, Hawaiian Punch, Canada Dry, Schweppes, Squirt, RC Cola, Diet Rite, Peñafiel, Rose’s, Yoo-hoo, Clamato, Mr & Mrs T and other well-known consumer favorites. Based in Plano, Texas, DPSG employs approximately 20,000 people and operates 24 bottling and manufacturing facilities and more than distribution centers across the United States, Canada, Mexico and the Caribbean.

Disclosure: Author held no DPS shares at the time of this writing.

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

Cisco – A Tech High Dividend Stock That’s Still Undervalued

Posted on August 16, 2012

by Robert Hauver

After getting bashed in the 2nd quarter, Cisco Systems, (CSCO), stock has done well this summer, gaining over 17% since the June lows. CSCO is also one of the top 4 DOW 30 performers over the past trading month, gaining 6.90%, and trailing only HD, CAT, and IBM, which leads the DOW pack with an 8.49% gain. Even with its big summer gains, CSCO still trails the market year to date:

Thanks to a stronger fiscal 4th quarter earnings report, in which adjusted EPS rose 18% vs. fiscal Q4 2011, Cisco’s full year 2012 EPS growth also looked good. In fact, one could argue that CSCO is still undervalued on a 2012 PEG basis. Looking forward, the consensus for 2013 calls for 10.81% EPS growth, which puts CSCO a bit over the 1.00 PEG threshold for being undervalued.

However, using the consensus future earnings growth rate of 8.09%, with a risk-adjusted 10.41% discount rate, shows CSCO’s estimated value to be approximately $23.25, indicating that CSCO is currently undervalued by well over 20%.

Dividends: After having joined the universe of dividend stocks in 2011, CSCO is now approaching the arena of Tech high dividend stocks. CSCO just ratcheted up its quarterly dividends big time, by announcing a huge 75% increase, going to $.14, from $.08. This is the second increase in 2012 – CSCO increased its dividend in the 1st quarter to $.08, from its initial $.06 payout. This new higher dividend payout ups CSCO’s dividend yield significantly, to just below 3.00%, which is in the higher range for most Tech stocks:

Options Outlook: If you’re interested in pumping up CSCO’s dividend yield even further, you can gain additional immediate income via selling covered calls. Since the $19.00 call strike price is only $.13 above CSCO’s mid-day $18.87 price, it appears that you would risk having your CSCO shares assigned/sold before you collect one or both of the $.14 quarterly dividends before the Jan. 2013 expiration.

However, your Assigned compensation would be much more than the dividends anyway: $1.11 in call premium now, plus $.13 in assigned price gain, for a net gain of $1.24, a 6.57% gain. If your shares were assigned near the October ex-dividend date, in under 2 months, this would equal a 39%-plus annualized yield approximately. Conversely, if your shares are never assigned, the minimum yield you’d make would be a 17.57% annualized static yield.

You can see more info on over 30 other call trades in our Covered Calls Table:

Here’s a look at where CSCO is at price-wise over the past 52 weeks. With a very strong relative strength of 72.39, you certainly can’t say that CSCO is oversold:

Cash Secured Puts: Given CSCO’s recent big rise, a cautious way to still profit would be to sell cash secured put options. This January 2013 put gives you a break-even price of $17.52, in addition to offering an annualized yield of over 18%, over 5 times the dividend amount.

You can see more info on over 30 other call trades in our Covered Puts Table:

Financials: As Cisco is such a dominant player in its industry, industry comps are a bit dicey. However, these comps do include other large firms that compete with Cisco in certain areas, such as Juniper, (JNPR), Alcatel-Lucent, (ALU), and Hewlett Packard, (HPQ):

Disclosure: Author was long CSCO shares and short CSCO puts at the time of this writing.

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

Two Industrial Dividend Stocks With 30% Covered Call Yields

Posted on August 10, 2012

Standard Motor Products, (SMP), and Worthington Industries, (WOR), are both on a roll this summer, having rallied significantly since the June 4th lows:

Dividends: SMP goes ex-dividend next week, and WOR goes ex- in early September:

Covered Calls: As you may have noticed on the 2 charts above, both SMP and WOR are currently showing as being overbought on their respective stochastic charts. This overbought condition often offers the best covered call option yields, and also helps to lock in some of your profits. Both of these dividend stocks currently have very high options yields for their covered calls.

Here are are 2 trades from our Covered Calls Table:

Even though SMP and WOR aren’t high dividend stocks, their options pay out over 6 times their dividend amounts in these 2 trades. The WOR covered call is in the money, with a strike price that’s slightly lower than SMP’s $22.53 price per share. The SMP price is above SMP’s price per share, and thus offers an potential assigned yield of 7.64%, ($.34/share difference between the $17.50 strike price, and SMP’s $17.16 share price.) The SMP is a longer term trade, expiring on November, hence its lower annualized yield:

Disclosure: Author had no positions in any of the stocks mentioned in this article at the time of this writing.

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

Cummins Is Bouncing Back But Is Still Undervalued

Posted on August 3, 2012

by Robert Hauver

If you’re looking for dividend stocks that bounce back and forth in a trading range, Cummins may be one of the best stocks to buy or trade for this attribute.

Cummins, (CMI), had a rough time after lowering its 2012 revenue forecast on July 10th, down to flat, from a previous 10% estimate. CMI shares reached as low as $82.20, but since then, have rallied nearly 18%:

Click here to read more…

Disclosure: Author was short CMI put options at the time of this writing.

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