Dow Dividend Stocks For 2014 – Dividends vs Covered Calls

by Robert Hauver

After the big gains in 2013, (and subsequent declining yields), income investors are scouring the market for safe yields in 2014. With this in mind, we took a look at the 2 highest yielding dividend paying stocks in the DOW 30: AT&T, (T), and its arch rival Verizon, (VZ). In particular, we compared these 2 stocks’ next quarterly dividends to covered call premiums, in order to see if you could increase your yield, while gaining some downside protection.

DIVIDENDS: Both of these stocks are listed in our High Dividend Stocks By Sector Tables, in the Telecoms section. AT&T has a higher dividend yield than Verizon, but Verizon’s 5-year dividend growth rate trumps AT&T’s.
T-VZ-DIV
COVERED CALLS: These April 2014 covered call options trades both have strikes above each stock’s price/share, which offers you a chance for some assigned price gains, in addition to increasing the yield above that of the dividends:
TVZ-CALL
Here are the 3 main income scenarios for each trade. You can find more details for these 2 trades and over 30 others in our free Covered Calls Table.
T-CALLINC
Since VZ’s strike price is further above its share/price, you have more of a chance for potential price gains:
VZ-CALLINC

EARNINGS: To be sure, neither of these stocks are growth stocks – here’s how they stack up against each other:
TVZ-PEG
VALUATIONS: The good news is that both stocks look to have more attractive P/E’s in 2014. VZ is commanding a premium over T in its Price/Book and P/E ratios.
TVZ-PB
FINANCIALS: VZ has used more debt for financing than AT&T has, and has a higher Operating Margin and ROI:
TVZ-ROE
PERFORMANCE: While VZ lagged the market during 2013, AT&T went absolutely nowhere over the past 52 weeks:
TVZ-PERF
Author: Robert Hauver,copyright 2014 DeMar Marketing, All Rights Reserved.
Disclosure: Author had no positions at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

Top Dow Dividend Stocks – Dividends vs. Options

By Robert Hauver

The Dogs Of The Dow strategy focuses on the Dow dividend paying stocks with the highest dividend yields. Currently, the 3 highest dividend paying stocks in the Dow are AT&T, (T), Verizon, (VZ), and Merck, (MRK).  This week we’ll compare current covered calls and cash secured put options to the dividend payouts for these stocks, all of whom are listed in our High Dividend Stocks By Sector tables.

Here’s how these 3 stocks have performed:

T-VZ-MRK-Perf

Like most other Healthcare stocks, Merck has lagged the market over the last year.  In 2011 it has also lagged the Healthcare sector, which is up nearly 10%.  AT&T and Verizon have both surged over the past year, partially due to the smartphone revolution.  AT&T benefited greatly from its exclusive sales arrangement with Apple, (AAPL), for selling the IPhone, an exclusivity which was lost, when Apple also granted Verizon selling rights in 2011.

Selected Financial Metrics:

T-VZ-MRK-ROE

AT&T is the clear winner in terms of ROE. The 2 Telecoms also have much higher operating margins than MRK.

Valuations:

T-VZ-MRK-VALUE

Again, AT&T has outperformed these other 2 firms, in past EPS and present EPS growth, in addition to having the lowest Price/Book, and PEG ratio, which, at 1.63, isn’t that attractive. However, its PEG for next year, at 1.31, is closer to being undervalued.  Although all 3 stocks are currently far below their values on a Discounted Future Earnings basis, Merck is sporting a very high PEG ratio for the next year, thanks to its stratospheric current P/E.

Covered Calls vs. Dividends:

T-VZ-MRK-CALLS

Selling 6-month covered call options is one way you can increase your income on these stocks. Note how the call premiums are all higher than the dividends paid out during this term.  You’ll find more details on these and other covered calls  in our Covered Calls Table.

Cash Secured Puts:

T-VZ-MRK-PUTS

These cash secured puts will give you an entry point/break-even even further below those of the covered calls.   Our Cash Secured Puts Table has more details on these and other put options trades.

Disclosure: Author is long shares of AT&T, and short puts of AAPL.

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

“Natural Gas Is Picking Up Steam” – Sept. 26, 2009

By Robert Hauver

The natural gas industry has many high dividend stocks among its members, but it also has some newer companies that may cash in on the rising tide of this abundant domestic fuel source.

An increasing amount of corporate and municipal fleet operators are beginning to convert their vehicles to natural gas, as the economic impact of much lower natural gas costs vs. petroleum costs begins to gather momentum.

We’ve noted previously that natural gas is on its way to becoming an extremely abundant energy source in the U.S., and now, it seems that, in the normal movement toward the cheapest resources, businesses are jumping on the bandwagon.

The Wall St. Journal reported this week, that AT&T is converting…

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The Top 5 Dividend Stocks for 2009 – Part 2 – Protecting Your Dividend Yield – May 15, 2009

By Robert Hauver

In part 1 of this article, we identified 2009’s top 5 dividend paying stocks, based on total cash payouts to investors. We also posed the question, “What if you want the dividend income from these stocks, but you’re afraid of a market pullback, or, you think the prices are too high right now?”

1. Royal Dutch Shell (RDS-A, RDS-B) Pays $3.20/share, and currently yields 6.5%.

2. AT&T (T) – Pays $1.64/share, has a current dividend yield of 6.4%.

3. General Electric (GE) GE’s $.82/share 2009 payout currently equals a 6.1% yield. (The payout will decrease to $.10/share per quarter in the 3rd quarter of 2009, so the remaining payout/share for the balance of 2009 will be $.51, a yield of 3.8%, or 5.7% annualized).

4. Exxon Mobil (XOM) The company’s annual dividend rate is $1.60/ share, for a 2.46% current yield.

5. Chevron Corp. (CVX), has an annual dividend/share of $2.60, which equals a dividend yield of 3.8% at the current price.

There are 2 ways you can use options trading to protect yourself from a falling market. In strategy 1 you’ll still earn the dividend income, in addition to your option income. which can often multiply the dividend yield several times over.  In strategy 2, you’ll either end up owning the stock at a lower price and a higher yield, or you’ll earn a very attractive short term yield:

Strategy 1: Sell covered calls.

Strategy 2: Sell covered, (cash-secured), put options.

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