Tag Archives: puts

The 3 Dividend Aristocrats With The Lowest PEG Ratios

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By Robert Hauver

Looking for dividend paying stocks with undervalued earnings growth?  We found the 3 Dividend Aristocrats stocks with the lowest PEG ratios: Cincinnati Financial, (CINF), Aflac, (AFL), and Chubb, (CB). CINF has the highest dividend yield of these 3 firms, currently paying 5.7%, and is listed in the Financials section of our High Dividend Stocks by Sector tables.

We compared these 3 stocks to the Dividend Aristocrats group, and to their Insurance industry peers.

Here’s the Dividend Aristocrats comparison:

Ticker

Price

P/E

PEG

P/S

P/B

P/Free Cash Flow

EPS growth this year

AVGS.

17.64

2.09

1.63

4.29

28.96

3.04%
CINF

$28.00

8.97

0.90

1.17

0.97

13.56

1.01%
AFL

$51.22

13.16

0.96

1.25

2.4

 13.35

21.86%
CB

$53.55

8.07

0.97

1.26

1.11

8.57

25.74%

Ticker

EPS growth next year

EPS growth next 5 years

Dividend Yield

Return on Equity

Total Debt/Equity

Operating Margin

Profit Margin
AVGS.

10.46%

8.92%

3.18%

19.41%

1.17

42.54%

10.61%

CINF

34.27%

10.00%

5.70%

11.51%

0.18

18.05%

13.09%

AFL

9.71%

13.74%

2.20%

22.36%

0.26

14.37%

9.55%

CB

5.44%

8.33%

2.80%

15.61%

0.25

23.78%

17.24%

CINF and CB both fare well vs. their Property & Casualty Insurance Industry peer group:

CINF CB INDUSTRY AVG.
Dividend Yield 5.70% 2.80% 2.58%
P/E 9.01 8.07 13.19
Price/Free Cash/Share 6.37 8.57 13.94
Total Debt/Equity .17 0.25 .24
PEG(Next 5 years) .90 .97 1.06
ROE (TTM) 11.51% 15.61% 11.37%
Operating Margin (TTM) 18.05% 23.78% 13.43%
EPS Growth Rate Next 5 Years 10.00% 8.33% 9.67%
Price/Book (MRQ) .95 1.11 1.71

(There’s additional info on CINF in our August “Stock of the Month” feature.)

Here’s the Accident & Health Insurance Industry Comparison for AFL:

AFL INDUSTRY AVG.
Dividend Yield 2.20% 1.42%
P/E 13.16 9.11
Price/Free Cash/Share 13.35 10.07
Total Debt/Equity 0.26 .21
PEG(Next 5 years) .96 .75
ROE (TTM) 22.36% 9.29%
Operating Margin (TTM) 14.37% 2.39%
EPS Growth Rate Next 5 Years 13.74% 12.23%
Price/Book (MRQ) 2.4 .99

When you compare AFL to its industry peer group, it begins to look pricey, in terms of its PEG ratio, since the Accident & Health Insurance industry has a low PEG of only .75.  AFL’s Price/Book and relative P/E are also higher than its peers.

Considering that the dividend yields for AFL and CB are both below 3%, investors may want to consider selling covered calls or cash secured put options in order to goose their returns on these 2 stocks and lower their break-even points.

We’ve added AFL to our Cash Secured Put Tables, as it currently has a 19.5%-plus annualized yield for selling its Feb. 2011 $50.00 put options.

Disclosure: Author is short puts of CINF.

Disclaimer: This article is written for informational purposes only

© 2010 DeMar Marketing        All rights reserved.

5 Undervalued Basic Materials/Energy Dividend Stocks

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By Robert Hauver

Are you looking for bargain basement dividend paying stocks with good earnings growth forecasts? Here’s a good place to start your search:

Our Stock Market Data page shows the Energy sector is off 8.65%, while the Basic Materials sector is down -8.43% year-to-date.  Additionally, our Market Cap/Style table shows that Large Cap Growth has taken the  biggest hit, dropping -3.92% YTD.  These two sectors have lagged way behind other industry sectors over the past year, as investors have  questioned the strength of the global recovery, and future demand.  If you believe that there will be steady or increased future demand for oil, natural gas, copper and the like, then you may want to research these 5 dividend stocks further.

We screened for low PEG ratios, strong next-year and next 5-year EPS growth figures, low Debt/Equity ratios, 3%-plus dividend yields.

The 5 stocks are: China Petroleum & Chemical (SNP), Chevron (CVX), Southern Copper (SCCO), Conoco Phillips, and Ensco (ESV):

Ticker

7/16/10 Price

Dividend Yield

P/E

PEG

EPS growth next year

EPS growth next 5 years

Total Debt/Equity

SNP

$76.96

3.35%

7.52

0.25

15.88%

29.70%

0.58

CVX

$72.07

3.94%

11.08

0.57

13.56%

19.60%

0.11

SCCO

$29.31

3.89%

20.54

0.71

38.29%

29.11%

0.33

COP

$52.09

4.16%

13.87

0.77

20.72%

18.05%

0.46

ESV

$40.63

3.36%

8.29

0.79

15.45%

10.50%

0.05

COP features the highest dividend yield of this group, currently at 4.16%, and is also in our High Dividend Stocks by sector tables.

Here are management and performance metrics, earnings dates, and volatility:

Ticker

ROE

ROA

ROI

Perform-ance (Year)

Perform-ance (YTD)

Earnings Date

Volatility (Month)

SNP

17.56%

7.78%

12.73%

-0.92%

-8.87%

4/29

1.64%

CVX

14.45%

8.09%

9.68%

17.45%

-3.32%

7/30

1.91%

SCCO

34.35%

21.83%

23.99%

41.99%

-6.70%

7/22

3.61%

COP

9.69%

3.88%

4.64%

32.22%

5.64%

7/28

2.34%

ESV

13.36%

11.11%

11.84%

10.88%

5.46%

7/22

3.56%

There are also puts and call options available on these stocks, for investors who want to hedge their investment via covered calls, or selling cash secured puts. In light of the upcoming earnings reports for 4 of these stocks, bid premiums may rise near earnings dates. Ensco (ESV), and Southern Copper (SCCO) have the highest % option yields, in keeping with their higher volatility.  In addition, Ensco, being a driller, is a rather contrarian pick right now, which also accounts for the high cash secured put bid premiums, (over 12%), for ESV in our Put Selling Table.  SCCO has even higher put options bid premiums, currently over 14%.

Disclosure: Author owns CVX shares.

Disclaimer: This article is written for informational purposes only.

Goldman Sachs, (GS) – Two Contrarian Bullish High Yield Covered Call & Put Options Trades

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By Robert Hauver

Although Goldman isn’t one of the High Dividend Stocks that we normally cover, some investors may want to consider making a bullish options trade on them, by selling covered calls or cash-secured put options.  Either of the following 2 trades will deliver a substantially lower break-even entry point that’s below GS’s long-term moving averages.

Another consideration is Goldman’s current valuation.  With their recent closing price of $144.83, GS has some pretty attractive valuation metrics already, compared to its competitors:

Ticker

P/E

PEG

P/S

P/B

P/Cash

P/Free Cash Flow

Goldman Sachs

6.04

0.67

1.38

1.02

2.75

2.16

Deutsche Bank

5.75

1.15

1.06

0.75

2.98

1.62

Jeffries

15.44

1.63

1.48

1.74

19.77

1.83

JP Morgan

15.39

1.97

2.17

0.95

5.01

1.78

Morgan Stanley

93.72

9.76

1.08

0.79

6.35

8.64

AVERAGE

32.575

3.6275

1.4475

1.0575

8.5275

3.21

Their PEG ratio of .67 would be attractive compared to most industries, and their Price to Cash and Price/Free Cash Flow are also solid for their peer group, not to mention the outsized earnings they’ve been reporting recently.  However, many investors would be quite leery of being long such a controversial stock, given the recent “Main St. vs. Wall St.” backlash in DC, and the ongoing financial reform legislation hearings in Congress.  With that in mind, here are 2 ways to hedge your bet on Goldman:

Here’s a Covered Call trade that has a break-even of $125.13:

Stock Price Dividends Pre-Expiration Call Strike Price/Expir-ation Month Call Bid Premium Static Yield (Call + Div.) Static Yield Annual-ized Total Potential

Assigned Yield Annual-ized
$144.83 $.70 $145/Jan.2011 $19.00 13.6% 21.3% 21.4%

This Cash-Secured Put Selling trade has a break-even of $128.03 :

Stock Price Put Strike Price/Expir-ation Month Put Bid Premium Put Yield Put Yield Annual-ized
$144.83 $140/Jan.2011 $16.80 12% 18.7%

(Put Yield is based on 100% Cash Reserve)

The break-even points on both of these trades are also considerably below analysts’ current estimates for Goldman, which range from $160.00 to $235.00.

Of course, in addition to the “moral hazard” debate about GS, there are many other issues and questions involving Goldman: does the SEC have a strong case; will the Feds make Goldman a sacrificial lamb for political reasons; and, moreover; will the final version of the financial reform legislation seriously impact their earnings.  One final thought: It wasn’t so long ago that a certain savvy investor from Omaha bet on Goldman, when their future and their competition’s futures looked a lot grimmer than they seem to look now.

Disclosure: Author is short GS puts.

Disclaimer: This article is written for informational purposes only.

Ares Capital- (ARCC):A BDC with High Dividend & Put Options Yields

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By Robert Hauver

Ares Capital is a Business Development Corp., (BDC), that was recently added to the Financial section of our High Dividend Stocks by Sector tables.   ARCC is a closed-end mgt. investment company which invests in US mid-market firms, via mezzanine debt, first and second lien senior loans, and warrants.  Ares just completed its purchase of ailing competitor Allied Corp., (ALD), in a drawn-out $905 million deal that began last October.

Ares looks good in our Industry Comparison table:

Ares Capital (ARCC) Misc. Financial Services Industry
Dividend Yield 9.27% ($1.40/yr) 2.82%
ROE 17.23% -4.33
ROI 75.61% -3.89
Profit Margin 83%
P/E 7.47 9.36
PEG .39 .30
Long Term EPS Growth 19% 8%
Long Term Revenue Growth 69% 0%
Price/Cash Flow/Share 9.75 12.38

ARCC’s 4th quarter 2009 earnings, (excluding one-time merger costs), beat estimates:

EPS of $.35 vs. $.33 in 2008 Q4.

ARCC’s next quarterly ex-dividend date should be approx. June 11th.

Ares closed at $15.10 this week, which puts it less than 2% below the high end of its 52-week range, ($4.12 – $15.28).  For income investors looking for a lower entry point, selling put options also offers a high yield on this dividend paying stock:

Click here to continue reading…

Disclosure: Author short puts of ARCC.

Disclaimer: This article is written for informational purposes only.

How To Turn Apple, (AAPL), Into An Income Stock

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By Robert Hauver

Devotees of dividend paying stocks may find it strange to hear Apple’s name mentioned in an article about income stocks, but there is a straightforward, conservative way to earn income quickly from this well-run tech stock.

Even though AAPL doesn’t pay a dividend, income investors could earn just below 11% by selling put options on it. (See below for details).

Apple looks good in many metrics when compared to the Computer Hardware industry:

Apple Computer Hardware Industry
ROE 31.90 27.61
ROA 28.96 22.07
ROI 19.35 13.66
Income/Employee $1.36 mln $ .96 mln
Profit Margin 20.04% 13.47%
Debt/Equity NO DEBT 20.10%

However, it does command a valuation premium to its peers:

But AAPL doesn’t seem so pricy when you compare its earnings to its closest peer in the Personal Computer Industry…  Click here…to learn more

Drilling For Dividends With EV Energy – Oct. 3,2009

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By Robert Hauver

If you’re searching for strong dividend paying stocks, make sure that you take a look at our new High Dividend Stocks by Sector tables, where you’ll find some of the best dividend stocks in each industry sector.

EV Energy, (EVEP), which currently tops our Energy Sector table, is one of the best stocks on this list, in terms of their industry comparisons. Not only do they have the highest dividend in the Oil & Gas Drilling/Exploration group, they outshine their peers by many other important metrics:

EVEP Oil&Gas Drilling-Exploration Industry
Dividend Yield 13.01% 2.24%
P/E 1.33 13.45
P/B 0.77 2.85
Current Ratio 8.43 1.3
P/Cash Flow/Share 1.26 8.23
Operating Margin 20% 10.08%
ROE 81.64% 12.58%
ROI 63.00% 6.86%
ROA 45.64% 4.97%

Click here…to keep reading

Dividends vs. Puts – A Short Term Profit Strategy – Aug. 29, 2009

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By Robert Hauver

With the S&P 500 up over 50%, and the Dow up over 45% since March 9th, many investors are still on the sidelines, chewing on sour grapes, and still wondering if this incredible rally is going to last.

What can you do if you got left behind by the current rally, but still want to make a profit?

Click here to find out…

Capstead Mortgage, A REIT High Dividend Stock – Aug. 22, 2009

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By Robert Hauver

Capstead Mortgage, (CMO), is a mortgage REIT which invests mostly in residential Adjustable Rate Mortgages that are issued and backed by U.S. government agencies, Fannie Mae, Freddie Mac, and Ginnie Mae.

CMO’s current dividend yield is over 17%.

To see industry comparisons and earnings info, Click here…

The Dividend Aristocrat With The Highest Dividend Yield -Aug. 8, 2009

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By Robert Hauver

When looking for the best stocks, always keep an eye on the dividend.  Long gone are the tech bubble days, when dividends were thought to be unimportant, when compared to the meteoric price appreciation of dot.com stocks.

Century Tel tops this elite list with its 8.9%-plus dividend yield.  Let’s look at some numbers: Click here… to continue reading…

Alexandria Real Estate (ARE) – A High Dividend REIT – August 3, 2009

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By Robert Hauver

Looking for good dividend paying stocks, but feeling left behind by the market’s reawakened rally?  Here are 3 steps you can take to find an undervalued stock that’s been somewhat left behind:

1. Look for an unloved sector: Health Care is only up 7.3% year-to-date, far behind the most of the other sectors, the majority of whom have posted double-digit gains.

2. Look in an unloved income sub-sector, such as the REIT sector:

The Vanguard REIT ETF is down over 11% this year, due to concerns about the refinancing difficulties that REIT’s with heavy short-term debt loads have had in the credit crisis.  (Analysts usually follow FFO, “funds from operations”, to monitor a REIT’s ability to cover its dividend).

Click here… for 4 ways to profit on Alexandria Real Estate…