Tag Archives: options

These 5 Dividend Paying Bond ETF’s Are Beating The S&P

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By Robert Hauver

The catastrophe that was predicted when Standard & Poors downgraded U.S. debt this summer didn’t faze the bond market. But it’s been the stock market that’s been hit, not the U.S. bond market, which just kept rising. Not that many dividend stocks held up during the correction, but these dividend paying ETF’s have beaten the S&P over the past month, quarter, and longer term:

T-BondPerf

Dividends Info: Even though the dividend yields on these ETF’s aren’t comparable to some high dividend stocks, they certainly are reasonable. Three of them pay monthly dividends, while the 2 others pay quarterly.

T-Bond-Divs

As of December 2010, the U.S. fixed income market was valued at $36 trillion, approx. twice the size of the U.S. stock market . Treasuries are 24% of this market, mortgage related are 25%, corporate debt is 21%, and the balance is in agency, money market, municipal, and asset-backed instruments. (Source: Securities Industry & Financial Markets Assoc.) (There’s a brief profile of all 5 ETF’s at the end of this article.)

Technical Data:

T-Bonds-RSI-Vol'y

All of these Bond ETF’s are trading above their 20-, 50-, and 200-day moving avgs.:

T-BondAvgs

So, given their outstanding share performance,is now the time to invest in any of these ETF’s? That depends upon your outlook – If you think the market is going to pull back again this fall/winter, then Bond ETF’s would probably be a good bet.  However, a safer approach might be to wait for a market bounce/rally, as these ETF’s are all near their overbought regions. Since these ETF’s usually decline when the market goes up, you’d be able to buy them cheaper.

For example, this chart and stochastic shows that an investor who bought ZROZ in late June, when the stochastic chart was showing it to be oversold, had very good timing, from a low of $69.65 in late June, to a high of $97.69 in Sept.  Even with this good timing, it’s been a bumpy ride along the way, with an approx. 10% draw-down, and 15% bounce-back in August, as the market bounced and retreated. During this most recent market bounce, ZROZ has fallen slightly below its overbought area, but has a long way to go to reach the oversold region:

T-Bond-ZROZ-Chart

Options: Only TLT has options available, and at the money covered calls and cash secured puts for Nov. 2012, for example are currently yielding approx. 20%-plus annualized. There are more details on this and many other option-selling trades in our Covered Calls Table and Cash Secured Puts Table.

Funds Synopses:

ZROZ: BofA Merrill Lynch Long U.S. Treasury Principal STRIPS Index is an unmanaged index comprised of long maturity Separate Trading of Registered Interest and Principal of Securities (“STRIPS”) representing the final principal payment of U.S. Treasury bonds. The principal STRIPS comprising the Underlying Index must have 25 years or more remaining term to final maturity and must be stripped from U.S. Treasury bonds having at least $1 billion in outstanding face value.

EDV: Seeks to track the performance of the Barclays Capital U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index. Passively managed using index sampling.

TLT: The iShares Barclays 20+ Year Treasury Bond Fund seeks to approximate the total rate of return of the long-term sector of the United States Treasury market as defined by the Barclays Capital U.S. 20+ Year Treasury Bond Index.

TLO: Seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Barclays Capital Long U.S. Treasury Index (index ticker: LUTLTRUU).

VGLT: Maintains a dollar-weighted average maturity of 10 to 25 years, and invests primarily in government bonds.

Disclosure: Author is long TLT.

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

Undervalued Financials: 3 High Dividend Stocks With Low 2011 PEG Ratios

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By Robert Hauver

Since the crash, many investors have shunned financial stocks, having been badly burned during the market meltdown.  However, Standard & Poor’s recently published a projected 2011 EPS growth by sector table that puts the Financial sector near the top for expected growth in 2011:

S&P-SECTOR-EPS-2011

There are currently some financial dividend paying stocks that are undervalued, when analysed by their 2011 PEG values.  In addition, they each offer a  hefty dividend yield. This week, we screened for Financial stocks with attractive ROE, high dividend yields, strong profit margins, and low 2011 PEG ratios. We came up with 3 financial dividend stocks, 2 REIT’s and a Diversified Investments firm, which we’ve added to the Financials section of our High Dividend Stocks by Sector Tables:

Resource Capital Corp REIT., (RSO),  NY Mortgage Trust REIT, (NYMT), and Main St. Capital, (MAIN):

MAIN-NYMT-ROE-2011-03-4

Although it has the lowest dividend yield, MAIN looks to have the best metrics of these 3 firms, in terms of highest profit margin, and lowest leverage. MAIN also has the lowest dividend payout ratio, (see below).  However, RSO and NYMT are estimated to have much higher growth in 2011:

MAIN-NYMT-PEG-2011-03-04

RSO is the only stock in this group that has options available. However, its options yields are much lower than its current dividend yield.

Dividend Schedules/Payout Ratios:

MAIN switched from a quarterly to a monthly dividend in Sept. 2008, and has maintained a $.125/share monthly dividend ever since. Dividend Payout Ratio: 54.29%

NYMT currently pays $.18/share quarterly. Their next ex-dividend date should be approx. March 30, 2011. (Note: They decreased their dividend from $.25 to $.18 in July 2010). Dividend Payout Ratio: 72.64%

RSO currently pays $.25′share quarterly. Their next ex-dividend date should be approx. March 29, 2011. Dividend Payout Ratio: 111.70%

Company Profiles:

(MAIN): Main Street Capital is a principal investment firm that provides long-term debt and equity capital to lower middle market companies. Main Street’s investments are primarily made to support management buyouts, recapitalizations, growth financings and acquisitions of companies that operate in diverse industry sectors and generally have annual revenues ranging from $10 million to $100 million.

(NYMT): New York Mortgage Trust, Inc. is a real estate investment trust (REIT) that acquires and manages primarily real estate-related assets, including mortgage-backed securities (“RMBS”) issued by Fannie Mae or Freddie Mac (each an “Agency”), high credit quality residential adjustable rate mortgage (“ARM”) loans, non-Agency RMBS, and to a lesser extent, certain other real-estate related and financial assets. As a REIT, the Company is not subject to federal income tax, provided that it distributes at least 90% of its REIT income to stockholders.

(RSO): Resource Capital Corp’s investment strategy focuses on commercial real estate-related assets and, to a lesser extent, higher-yielding commercial finance assets. RCC invests in the following asset classes: commercial real estate-related assets such as whole loans, A-notes, B-notes, mezzanine loans and mortgage-related securities and commercial finance assets such as other asset-backed securities, senior secured corporate loans, equipment leases and notes, trust preferred securities, debt tranches of collateralized debt obligations and private equity investments principally issued by financial institutions.

Disclosure: No positions

Disclaimer: This article is written for informational purposes only.

3 Dow Dividend Stocks With High Options Yields

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By Robert Hauver

Looking for blue chip dividend paying stocks with a decent dividend yield? As the rally continues, and share prices climb, many dividend yields aren’t keeping pace, posing an ongoing challenge for income investors.  If you want to earn higher yields over the next few months, here are 3 Dow dividend stocks that all have double-digit high options yields on Covered Calls and Cash Secured Puts:

American Express (AXP). Intel (INTC), and JP Morgan Chase (JPM).

AXP-INTC-JP-ROE-2011-02-17

Not surprisingly, JP Morgan has the weakest mgt. metrics, due to hangover from the financial crisis, but it does have a higher Profit Margin than American Express. However, JPM has appreciated the most year-to-date, up 13.15%.  JPM has also talked about raising its dividend in the future, as conditions approve. Currently, Intel has the best dividend yield of these 3 stocks, and is above the Dow 30 2.71% average.  We’ve added INTC to the Tech section of our High Dividend Stocks by Sector Tables.

Intel’s higher dividend yield hasn’t translated into higher share performance yet in 2011, as it’s up only 4.32%, due to analysts’ concerns over slower growth in 2011, after 2010′s record earnings. Thus far, JPM has the lowest 2011 PEG ratio, but Intel may very well keep surprising to the upside, if Tech spending continues to pick up in 2011:

AXP-INTC-JP-PEG-2011-02-17

You’d think that American Express would be poised to capitalize on rising consumer spending, but pending legislation on credit card fees is holding back EPS growth forecasts. However, the Fed just weighed in on possible fallout from this bill, so, things may change: “The Dodd-Frank Act enacted in July requires the Fed to establish the cap on so-called interchange fees charged to merchants. The central bank proposed in December to set the limit at 12 cents per transaction, setting off a lobbying battle between retailers who favor the rule and lenders, who stand to lose more than $12 billion in annual revenue if the proposal as written becomes final” (Reuters)

Here’s how Covered Calls stack up vs. the dividends for these stocks:

AXP-INTC-JP-CALLS-2011-02-17

As none of these stocks boasts a huge dividend yield, their call options yields easily outstrip their dividends by at least 6 to 1. These are all relatively short-term 4- to 5-month trades, expiring in June and July. There are more details about these and other trades in our Covered Call Table.

For investors looking for a lower entry point, selling Cash Secured Puts also offers double-digit annualized yields:

AXP-INTC-JP-PUTS-2011-02-17

Intel has the least volatility of this group, at under 14 over the past few months, hence its put options yields trail AXP and JPM, both of which have 20-plus volatility. You’ll find more details about these and other options trades in our Cash Secured Puts Table.

Disclosure: Author is short JPM puts, long INTC shares, and short INTC calls.

Disclaimer: This article is written for informational purposes only.

3 Undervalued Consumer Goods Dividend Stocks With High Options Yields

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By Robert Hauver

This week we looked for undervalued dividend paying stocks in the Paper & Paper Products Industry, an industry which should benefit from an improved demand and reduced supply. We screened for dividend stocks with strong ROE, EPS growth -(historic and projected), low short ratios, and high options yields, among many other metrics.

We came up with these 3 stocks, which aren’t the highest dividend stocks around, but they do offer attractive options yields, which are listed further on this article.

Glatfelter (GLT): One of the world’s leading manufacturers of specialty papers and fiber-based engineered paper products. Many of its items are targeted at relatively small, niche markets with a limited number of suppliers. The company serves customers in a variety of sectors, including trade book publishing, envelope and converting, food and beverage, carbonless, pressure-sensitive, digital imaging, composite laminates, and feminine hygiene. Glatfelter’s papers are used for tea bags, coffee fil- ters, textbooks, metallized labels for beer bottles, postage stamps, adhesive tape, playing cards, laminate flooring, adult incontinence, and pre-moistened wipes, among other uses. Net sales in the U.S. accounted for 70% of total sales in 2009, Germany 16%, United Kingdom 11%, and other countries the remainder. (Source: Standard & Poor’s)

Neenah Paper (NP): A leading international producer and distributor of premium fine papers and technical products used in filtration, tape, abrasives, and other specialty markets.  Spun off from Kimberly Clark in 2008, NP now has two business segments. In 2009, the technical products business accounted for 55% of revenues and fine paper 45%. In its fine paper business, NP produces premium writing, text, cover and specialty papers, which are typically used in annual reports, corporate identity packages, invitations, personal stationery, and high-end packaging for point of purchase advertising. The technical products business is a leading producer of transportation and other filter media, durable, saturated and coated substrates used in tape, label, abrasives, filtration, medical packaging, wall covering, and image transfer markets. On a geographic basis, 63% of sales were generated in the United States and 37% came from Europe in 2009.  (Source: Standard & Poor’s)

Temple Inland (TIN): Following a major transformation in 2007, Temple-Inland is now focused on corrugated packaging and building products. Its corrugated packaging segment (84% of 2009 sales) makes containerboard and converts it into boxes. The building products segment (16%) produces wood products, including lumber, particleboard, medium density fiberboard, gypsum wallboard and fiberboard. The company serves over 9,000 corrugated packaging customers with 15,000 shipping destinations from its seven paper mills and 63 converting facilities. (Source: Standard & Poor’s)

Here’s an industry comparison for management and profitability:

NP-GLT-TIN-ROE-2010-12-09

The comparative ROE’s and operating margins look good, but TIN’s debt load is high, even for its capital intensive industry.

The valuations for these stocks are attractive for the coming year, (particularly next year PEG):

NP-GLT-TIN-PEG-2010-12-09

TIN and GLT shares have climbed back into positive ground during the past quarter.

The table below shows their share performance, ownership, market caps, and more selected valuation metrics:

NP-GLT-PERF-VAL-2010-12-09

GLT and NP look more undervalued than TIN on a Price/Sales, Price/Book, and Price/Free Cash Flow basis.

You can greatly improve upon the dividend yield of each of these stocks by selling covered calls or cash secured puts.

Here’s how the  Covered Call options stack up:

NP=GLT-TIN-CALL-2010-12-09

In addition to the static yields listed above, you also have the potential for price gains.  For example, even though GLT’s static yield is only 9.83%, since there’s $1.83 spread between the current price and the strike price, you’d realize an additional 23% if the shares are assigned. (There are more details on these call options trades in our Covered Calls Table.)

The Cash Secured Puts for these stocks also offer attractive yields:

NP-GLT-PUTS-2010-12-09

There are more details on these put options trades in our Cash Secured Puts Table.

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only.

3 Undervalued Dividend Aristocrats With High Options Yields

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By Robert Hauver

If you’re looking for steady dividend paying stocks with a long history of paying dividends, the S&P Dividend Aristocrats is a good place to start your research.  These stocks have all increased their dividends each year for the past 25 years.  This week we screened the S&P Dividend Aristocrats for dividend paying stocks with low next-year PEG ratios, strong next year EPS estimates, low debt loads, attractive financial & management metrics, and low to moderate price gains over the past year.

We came up with 3 prospects: Aflac, (AFL), Leggett & Platt, (LEG), and Lowe’s, (LOW). Lowe’s and Leggett & Platt are plays on the consumer, via the home improvement and home furnishing categories, while Aflac sells supplemental accidental and health insurance, mainly through employers. With a 5%-plus dividend yield, LEG is listed in the Consumer Discretionary sector of our High Dividend Stocks by Sector Tables.

Financial/Mgt. Metrics:

As you can see, all 3 firms have a relatively low debt load, but AFL has the best ROE and Profitability numbers.  However, LEG wins in the dividend yield category:

AFL-ROE-2010-11-16

Share Performance:

AFL-LOW-PERF-2010-11-15

Although  AFL’s 1-year and YTD share price performance is much higher than LEG and LOW, AFL still looks undervalued, on a PEG basis:

Valuation:

AFL-LOW-LEG-PEG-2010-11-15

Although AFL’s next-year EPS growth estimates are the lowest of the group, its much lower P/E translates into a lower Next Year PEG of .76. AFL also has the lowest 5-year PEG of the group, with .97.

There are Covered Calls and Cash Secured Puts available on all 3 of these dividend stocks. In fact, AFL and LEG both have high options yields, ranging up to the 20%-plus range, for these Covered Call options:

AFL-CALL-2010-11-16

You can find more details in our Covered Calls Table.

The Cash Secured Put options have a broader range, and also offer double-digit annualized yields:

AFL-PUT-2010-11-16

There are more details for the above put option sales in our Cash Secured Puts Table.

Disclosure: No positions yet.

Disclaimer: This article is written for informational purposes only. © 2010 DeMar Marketing. All Rights Reserved.

3 Undervalued S&P Dividend Stocks With High EPS Growth & Attractive Option Yields

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By Robert Hauver

We screened the S&P 500 this week for low PEG, high EPS growth, low debt, dividend stocks with attractive option yields.  These 3 firms all had strong EPS growth this year, ranging from 46% to almost 400%.  They also are projected to have EPS growth next year of 11% to 16%+, and have similar strong 5-year growth figures, which contributes to their low PEG ratios.

One of these firms, Conoco Philips, (COP), is listed in the Energy section of our High Dividend Stocks by Sector tables. While the other 2 firms, Comcast, (CMCSA), and Prudential, (PRU), don’t have high dividend yields, you can achieve good yields on them by selling covered calls or by selling cash secured puts.

Here are the EPS growth and related PEG ratios for these 3 firms:

COP-CMCSA-PEG

Here are their dividend yields, ROE, debt and profit figures:

COP-ROE

These 3 firms also all have a low dividend payout ratio, ranging from only 8% to 34%. As you can see, these dividend paying stocks don’t have the highest dividend yields around, but you can still earn a respectable yield on them by selling covered call options, which are currently achieving double digit annualized yields of 16%-plus to over 19%:

COP-CMCSA-Calls

(Static Yield also includes the dividends you’d collect before expiration. There’s a breakdown of this in our Covered Calls table).

Likewise, selling cash secured put options can also give you a double-digit annualized yields, while also lowering your breakeven cost:

COP-Pru-Puts

(These put yields are based upon a 100% cash reserve). You can find further details in our Cash Secured Puts table.

If you’re looking for income from dividend stocks that have fared well in this challenging economy, undervalued stocks with good growth prospects offer a good place for further research. Thus far in 2010, growth stocks have outpaced value stocks in large, mid, and small cap stocks.

Disclosure: No positions yet.

Disclaimer: This article is written for informational purposes only, and is not intended as investing advice.

Dow Dividend Stocks – Top 7 Cash Secured Put Options

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By Robert Hauver

Dow dividend stocks aren’t usually mentioned in the world of high dividend stocks, but selling cash secured put options is a way you can earn some impressive double-digit annualized yields out of even these modest dividend paying stocks.

We screened for the top 7 put selling yields for DOW dividend stocks and came up with these 7 option trades:

DowPuts9-7-10

(All of the above put bid yields are based upon 100% cash reserve)

As you can see, these put yields far outstrip the dividend yields, and in a shorter 5-6 month time period.  Hence, the annualized yields are pretty impressive.

We’ve added some of these put options this week to our Cash Secured Puts Table, which will show more detail.

Why sell cash secured puts, instead of just buying the stock outright?

  1. More Risk Protection – By earning the higher put option $, you’re lowering your break-even cost, and giving yourself greater downside protection.
  2. Better Cash Flow –  You get paid the put premium within 3 days of selling puts, as opposed to waiting each quarter for a dividend payout.
  3. Higher Yields – This happens 2 ways: In the above trades, the put yields are 2 to 9 times that of the dividend yields.  Also, with your lower breakeven cost, if the shares do get assigned/put to you, the ultimate dividend yield on the underlying shares will be higher, due to its lower cost.
  4. Potential Tax Deferral –  The IRS rules state that,”If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put. Your holding period for the stock begins on the date you buy it, not on the date you wrote the put.” (Source:www.IRS.gov/publications)         This means that you don’t have to pay taxes on the put $ you received until you sell the assigned underlying shares. If you hold the underlying assigned shares for more than 1 year, you’ve also converted a short-term gain into a long-term gain.
  5. Knowing your “trade range” before trading-  This strategy tells you your maximum gain and break-even cost, before you invest, as opposed to buying, and hoping for price appreciation.

Cons

  1. Options gains are always taxed at short-term capital gains rates, which will be higher than qualified dividend tax rates.
  2. Put options sellers are required to have 100% “cash reserve” by their brokers, i.e., your broker will set aside 100% of the value of the underlying shares against which you sell puts. 100% cash reserve is always required in an IRA account, but, investors with thorough options experience may qualify for Options Level 3 trading status, which lets the broker reduce the cash reserve to a lower 25-35% approx. range, thereby employing leverage.  A note of caution here: if you do employ this type of leverage, it’s very important to keep track of your potential exposure, and not get in over your head.
  3. Cash secured put selling is a strategy that requires a bit more of a hands on approach, as opposed to the “buy and hold” strategy. However, this strategy shouldn’t be confused with day trading – Put sellers make their sale, collect the put $, and monitor the put’s value during the investment term, as opposed to jumping in and out of a trade every day.
  4. Less rally participation – The maximum gain on selling cash secured puts is the amount of $ you receive when making the put sale, so, this profit could potentially be less than the eventual price appreciation of a stock.

Is it worth it?

Some investors would argue that, if you do nothing, and the stock’s price declines, you could also own the stock a lower cost.  That could be happen, but looking at the possible outcomes in the market, selling cash secured put options offers a greater chance for income:

PutSellingOutcomes

Another issue to consider here is time value of money, and what you’ll earn on your money, while you wait for a stock to hit your price.

In addition, due to the timing factor in options, time favors an option seller over an option buyer, since the buyer must guess the stock’s ultimate price direction and price level, and must be correct before the option expires.  That’s often a very tall order, and it’s one of the reasons that 3 out of 4 options expire worthless – which is a distinct advantage for an option seller – time is on your side.

Disclosure: Author is short INTC puts.

Disclaimer: This article isn’t intended as investing or accounting advice.

3 Large Cap Dividend Stocks With Attractive Options Yields And Low PEG Ratios

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By Robert Hauver

We screened for large cap dividend stocks with low PEG ratios, 3%-plus dividend yields, and attractive options yields for both covered calls and cash secured put options. We’ve added them this week to our Covered Calls table and to our Cash Secured Puts table.  These are short-term trades, (5-6 months), that should capitalize on the current low PEG ratios for next year for these 3 firms.

Conoco Philips (COP): A major integrated Oil & Gas co., (Basic Materials sector), COP’s revenues increased 42% to $95.89B for the six months ended 30 June 2010. Net income totaled $6.3B, up from $1.7B for the same period. (These figures include the sale of Syncrude).  ConocoPhillips intends to sell the remaining 60% of its entire stake in Lukoil for $3.44 billion in 2011.  (Source: Morningstar)

Eaton Corp. (ETN): An Industrial & Electrical Equipment firm, (Industrial Goods sector).  Eaton Corporation’s revenues increased 13% to $6.48B for the six months ended 30 June 2010, and net income totaled $381M vs. a loss $21M year-over-year. Revenues reflect a rise in the income from Truck segment, the Automotive segment,the international Electrical segment, and higher sales from their Hydraulics segment.  International sales have grown from 20% of the total in 2000 to 55% in 2009 (including 22% to developing markets, up from 8%).  Eaton now serves a wide swath of industrial markets, including aerospace, energy, agriculture, and construction. (Source: Morningstar)

McGraw Hill (MHP): A major Publisher, (Services sector), MHP was founded in 1888, and is a member of the S&P Dividend Aristocrats, an elite group of firms who’ve increased their dividend every year for a minimum of the past 25 years.  MHP’s revenues increased 2% to $2.66B for the six months ended 30 June 2010, and net income increased 30% to $294.4M. Revenues reflect an increase in income from Financial Services and higher income from McGraw-Hill education segment.  McGraw-Hill’s branded information services include the likes of Standard & Poor’s, J.D. Power & Associates, Platts, Aviation Week, and McGraw-Hill Education.   (Source: Morningstar)

All 3 of these dividend paying stocks have options trading strategies available.  Considering the current wave of uncertain expectations descending upon the economy and the market, income investors looking for near-term income may want to consider selling covered calls or cash secured puts, both of which offer higher yields than these firms’ dividends.

(Note: Option yields below are annualized for ease of varying time-length comparison):

COP-ETN-MHP-Options

Here are the valuation comparisons:

COP-ETN-MHPVal2

Here are key efficiency and financial ratios:

COP-ETN-MHP-Effy

Conoco Philips is currently also listed in the Energy section our

High Dividend Stocks By Sector Tables.

Disclosure: No positions at this time.

Disclaimer: This article is for informational purposes only.

New Zealand Telecom, (NZT), Maintains Its High Dividend Yield for 2010

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By Robert Hauver

New Zealand Telecom has one of the highest dividend yields in the Telecom Stocks section of our High Dividend Stocks by Sector Tables, with a 9.54% dividend yield currently. However, they just declared a quarterly dividend for Q3 Fiscal 2010 of $.2122/ADS, which works out to almost 85 cents annually.  NZT closed Friday, May 7th, at $7.44/ADS, which would make their forward dividend yield approx. 11.29%.

The ex-dividend date is May 18th, and the payment date is June 11th. (One ADS, American Depository Share, equals 5 Ordinary New Zealand shares, and 1 New Zealand $ equals 0.714850 US $ ).  (NZT pays dividends quarterly.)

NZT is targeting a 90% dividend payout policy, and reiterated in today’s earning release that they intend to pay the equivalent of $.8488 per ADS in dividends in 2010.  They see 2010 earnings as being -1% below 2009, which would equal about $.89/ADS, which would put their forward dividend payout ratio at 96%.  A 90% dividend payout on $.89 would equal $.80/ADS, which is still a hefty 10.77% dividend yield.

NZT reported Q3 fiscal earnings results today that were generally in line with their previous guidance, and maintained their full year guidance.  Their market share of fixed broadband was steady at 57%, and they had 7% mobile revenue growth.

Concerning valuation, NZT has one of the lowest P/E’s in the Foreign Telecom group, and its stock price is up less than 1% for the past 12 months.  If you’re looking for foreign dividend paying stocks with high dividend yields, you may want to consider NZT.  (There are no options available for NZT).

Disclosure: Author is long shares of NZT.

Disclaimer: This article is written for informational purposes only.

Microchip Technology, (MCHP) – A Tech Dividend Stock With High Option Yields

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By Robert Hauver

Microchip Technology, (MCHP), is a dividend paying stock listed in the Tech section of our High Dividend Stocks by Sector tables.  MCHP’s current dividend yield is 4.66%. MCHP is a leading provider of microcontroller and analog semiconductors, and is based in Arizona.  The firm recently upped its earnings guidance for Q4 fiscal 2010, from $.34/share to $.42, (non-GAAP), citing stronger bookings and sales.  They also expect sales to be up 8%.  MCHP reports earnings this coming week, on May 5th.

MCHP recently bought Silicon Storage Technology, whose SuperFlash technology is used widely in advanced microcontrollers.  MCHP will now be able to embed this technology in its microcontrollers, which is their core business.

Although its debt load is slightly higher than its peers, MCHP’s balance sheet is solid, and this firm fares well overall in our Industry Comparison table:

MCHP Semiconductor Industry
Current Ratio 7.79 3.72
Debt/Equity 22.85% 19.30%
Profit Margin 19.47 10.60
Price/Free Cash/Share 10.85 25.15
ROE 13.11 10.12
ROI 36.46 9.10
PE 33.19 28.85

MCHP’s current PE looks a bit rich vs. its peers.  Investors looking to lower their breakeven costs could do so by selling covered calls on MCHP.  Our Covered Calls Table currently lists the October $30.00 call option, (QMT10J1630.0), for MCHP as having a 16%-plus annualized static yield, and an assigned annualized yield of nearly 23%.  Your breakeven cost on this options trade would be $26.98, Friday’s closing price of $29.21, minus the $2.23 in call and dividend money from the trade.

An additional strategy for lowering your breakeven cost would be to sell MCHP put options. The October $30.00 put option listed for MCHP in our Put Selling table is currently worth a $3.00 bid, which equals a 10% nominal yield, or 22%-plus annualized. Your breakeven would be $27.00 on this options trade.  (These percentages are based upon 100% cash reserve).

Disclosure: No positions in MCHP at this time.

Disclaimer: This article is written for informational purposes only.