Stock Market News: 4/21/18

How is your portfolio handling the up and down market of 2018?

Click here to learn how Selling Options can take advantage of higher Volatility, giving you more downside protection and more income.

Markets: It was an up week for the market, with all 4 indexes posting gains, led by the Russell small caps. The week ended on a down day, though, investors grew leery of rising bond yields and rising inflation. The 10-Year Treasury note rose to 2.956% on Friday, the highest since January 2014. Stocks have been more sensitive to bond prices recently, as the 10-year yield approaches 3%. Click here to read more…

Profiting Now From A 2014 US Housing Rebound

By Robert Hauver

Do you think the US housing industry will bounce back in 2012 or 2013? The housing recovery theme has attracted more believers in recent months, as US economic data has mostly improved, and homebuilder stocks have risen.

Warren Buffett has been calling for a housing rebound for quite some time, and is predicting the start of a recovery in 2012, citing 1 million housing starts/year as a key target of industry growth. The NAHB reported that the pace through Nov. calls for 685,000 starts in 2011, which is 98,000, (16.7%), higher than 2010. The Northeast jumped 41%, the West rose 36%, the South rose 12%, and the Midwest fell 8%.

Fed Chairman Bernanke has also stated in a Fall 2011 speech that, “Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it”.  A Sept. 2011 Harvard University study forecasts the amount of new US household formations during the decade between 2010 and 2020 will be at least 11.8 million.

Toll Bros., (TOL), a mid- to upscale market builder, has survived the housing crash reasonably well, and was, unexpectedly, one of the best stocks to buy in 2011 for price gains, as it rose over 7%, vs. 0% for the S&P.  TOL continues to capitalize on cheap land prices, via a combination of land purchase options and outright purchases.  They’ve taken substantial impairments on their existing pre-crash land portfolio.

TOL is one of the few US homebuilder stocks who have positive earnings, however, this is still due to the use of accrued tax benefits which they’ve accumulated from prior years’ losses. They have tax benefits worth $104 million-plus that they can still write off, as of 10/31/11.  Toll Bros. also has one of the lowest debt loads in the housing industry, with a Debt/Equity Ratio of .65.

TOL-PEG

TOL’s recent quarter EPS growth decline was due to FY 2011’s fourth quarter only including a tax expense of $0.2 million, vs. a $59.9 million net tax benefit in FY 2010’s fourth quarter. On a pre-tax basis, TOL’s income rose by nearly $25M , as they reported FY 2011 fourth-quarter pre-tax income of $15.3 million, vs. FY 2010’s fourth-quarter pre-tax loss of $9.5 million.

TOL has also moved into lucrative urban markets, such as New York’s Manhattan and Brooklyn boroughs, and DC suburbs, where housing in trendy neighborhoods has traditionally been a tight, lucrative market. Their 2011 10K report states, “In order to serve a growing market of affluent move-up families, empty-nesters and young professionals seeking to live in or close to major cities, we have developed and are developing a number of high-density, high-, mid- and low-rise urban luxury communities and are in the process of converting several for-rent apartment buildings to condominiums”

“These communities, which we are currently developing on our own or through joint ventures, are located in Dublin and San Jose, California; Singer Island, Florida; Chicago, Illinois suburbs; North Bethesda, Maryland; Hoboken, New Jersey; the boroughs of Manhattan and Brooklyn, New York; Philadelphia, Pennsylvania and its suburbs; and Leesburg, Virginia.”
“We believe that the demographics of the move-up, empty-nester, active-adult, age-qualified and second-home upscale markets will provide us with the potential for growth in the coming decade.  According to the U.S. Census Bureau, the number of households earning $100,000 or more (in constant 2010 dollars) at September 2011 stood at 24.3 million, or approximately 20.5% of all U.S. households. This group has grown at four times the rate of increase of all U.S. households since 1980.” (Source: Toll Bros. 12/22/11 10Q Report)
TOL’s pre-tax income and revenue breakdown by geographic segment shows mostly improving trends, and also shows that the North and Mid-Atlantic regions are currently driving their profits, which is in line with the Northeast’s housing starts gains we mentioned earlier. Toll noted that its North segment’s 2011 revenue decrease was mainly due to many communities there being sold out:
TOLL-GEOG-INC
If you feel that the US employment picture will eventually improve in 2013, and improve Toll Bros’ sales and profitability along with it, TOL may be one of the best stocks to buy in 2012 for a long term speculative US housing trade, via selling cash secured puts, below TOL’s current share price. There are LEAPS available, (long-term equity appreciation security options), which don’t expire until Jan. 2014, which would give these trades the benefit of time to develop:
TOL-PUTS
The table illustrates how the put options’ yields and premiums decrease, the further below TOL’s current stock price the put strike price is. As always, there’s a trade-off between risk and reward. Although the annualized yields aren’t very high on these trades, unlike dividends, you’ll receive your put premium $ within 3 days of selling put options. Your broker will hold a cash reserve equal to the amount of puts that you sell, times the strike price, times 100. (Each options contract corresponds to 100 shares of the underlying stock.)  For example, selling one $13.00 put option requires a cash reserve of $1,300.00, and obligates you to potentially have to buy 100 shares of TOL at $13.00, if it falls below $13.00 before expiration in Jan. 2014.  Generally, most options aren’t exercised until close to or at expiration, because it’s usually more profitable for the option buyers to just trade the options themselves, instead of selling the underlying stock.
The other attraction that selling options offers is tax deferral: If you’re able to let these options expire in Jan. 2014, your tax bill won’t be due until April 2015. So, you’ll get paid up front, and have tax-deferred use of the option $ you receive for over 2 years.
(Note: You can see more info on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)
Although Toll doesn’t pay dividends, they do have a 20 million share buyback program, which they started in 2003, and greatly accelerated in 2011. The plan still has 8,786,000 shares that can be repurchased:
TOL-SHARE-REPURCH
One thing to beware of in this long term speculative trade, is that there’s a fair amount of short interest against TOL, and many other US homebuilders. In comparison, Lennar has a short float nearing 20%, and a higher beta of 1.71:
HOME-TECH'L
The homebuilders have had quite a runup in recent months, and TOL looks overbought on a stochastic chart, so you may be able to achieve even higher put premiums by waiting for the next pullback, when TOL’s share price should decline, and its put prices rise.
TOL-CHART

Disclosure: Author has no positions in TOL, LEN, or DHI at the time of publication.

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

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

3 Solid Industrial Dividend Stocks With High Options Yields

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.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

2 Solid Dow Dividend Stocks With 2 Ways to Earn 20% Yields

By Robert Hauver

Looking for the best stocks to buy in 2011? With the S&P down over 9% year to date, you may be looking for dividend paying stocks that have outperformed the market. In this respect, the Tech sector offers some of the best stocks around, as this sector has beaten all other sectors except Utilities over the last trading quarter. We found 2 well-known, undervalued Dow dividend stocks in the Tech sector with good earnings growth, strong financials, both of which offer high options yields for covered all sellers and cash secured put sellers

One of these stocks, Intel, is listed in our High Dividend Stocks By Sector Tables, since it has a higher dividend yield than average for the Tech sector. Intel increased its quarterly dividends from $.1812 to $.21 for the 3rd quarter of 2011. Microsoft just announced an even bigger dividend increase for the third quarter, rising to $.20 from $.16/share.

INTC-MSFT-DIVS

Selling Options Offers Much Higher Yields:

Even though these aren’t in the upper realm of high dividend yields, by selling options, you can greatly increase your yield to over 20% annualized on these stocks. In these 2 strategies the option yields outstrip the dividend yields by up to over 10 times.

Covered Calls: The INTC call option expires in December, and the MSFT calls expire in Jan. 2012.

The call option premiums for MSFT pay nearly over 9 times that of MSFT’s dividends during this 4-month period, ($1.78/call premium vs. $.20/dividend).

You’ll find more details on this and many other high yielding covered call trades in our Covered Call Table.

INTC-MSFT-CALLS

Cash Secured Puts: If you want to be more conservative, and achieve a lower break-even entry price, you can sell cash secured put options just below the current stock price and receive some rather high option yields. Due to the present market volatility, the difference in put options premiums vs. dividends is even higher than calls vs. dividends.

Again, MSFT offers the most dramatic advantage for selling options vs. dividends:  MSFT pays $2.10 for puts. vs. $.20 for dividends. The puts listed below all expire in Jan. 2012.

There are more details on this and many other cash secured puts trades in our Cash Secured Puts Table.

Note: Dividends in our puts tables only for comparison – unlike covered call sellers, put sellers don’t receive dividends.

INTC-MSFT-PUTS

Financials: In addition to having very low debt loads, (INTC is nearly debt-free), both of these stocks have strong management efficiency and margin metrics.

INTC-MSFT-ROE

Valuations: The 3.39% EPS growth figure for INTC might be too low, given that analysts typically undervalue Intel’s future earnings, as evidenced by INTC’s 4 consecutive earnings surprises over the past year. Thus, Intel’s PEG for the next fiscal year looks high. The Price to Book metrics for both firms are below the 3.91 average for the Tech sector.

INTC-MSFT-PEG

Technical Data: Intel has had a better time of it in 2011 than Microsoft, and has fared well in the correction. MSFT’s Relative Strength of 39.11 puts it just inside oversold territory.

INTC-MSFT-PERF

Disclosure: Author is long shares of Intel.

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

Dow Dividend Stocks That Have Beaten The Market Since The S&P Credit Downgrade

By Robert Hauver

Dividend investors have been looking for cover ever since the S&P downgrade of US credit, but, it seems that some of the best stocks to buy or own during these latest financial storms are Dow dividend stocks. At the time of this writing, 12 out of the 30 Dow Jones Industrial stocks have exceeded the S&P and the DOW since the S&P US credit downgrade on August 5, 2011. Even better, they’re all dividend paying stocks:

DOWSTKS-PERF8-18-11

This week, Walmart and Home Depot both upped their guidance, and reported EPS increases for the most recent quarter, which has helped them to weather the latest market storm better than other Dow 30 stocks. Seventy-five per cent of these stocks had improved earnings in their most recent quarter, (see the Valuations table at the end of this article).  Note also that, other than Cisco, these stocks all have a Beta under 1, which certainly helps in times of market downturns.

Dividends :

DowStks-Divs-2011-08-18_2129

JNJ, MRK, PG, T, and VZ are listed in their respective sectors in our High Dividend Stocks By Sectors Tables.

Selling Covered Calls:

Since we’re entering the historically rocky months of Sept. and Oct.,  you may want to hedge your bet by selling covered calls. In a way, selling covered calls is like getting paid to insure your stocks, in that the additional option $ you receive will lower your downside risk, via a lower breakeven point.

The following table illustrates how much you can currently earn from selling covered calls for five of these stocks. Note how the call options premiums all outstrip the dividends during this approx. 5-month period, sometimes by 2 to 1. (The call options listed in this table all expire in Jan. 2012.)

You’ll find more info on these and many other covered calls in our Covered Calls Table:

DowStks-Calls-2011-08-18

Selling Cash Secured Puts:

Selling cash secured put options below a stock’s current price will also achieve a lower breakeven price, and afford you further downside price protection.

Thanks to the recent rise in volatility, these put option premiums pay up to 6 times the dividends during this same five month term.

(All put options in this table expire in Jan. 2012.)

There’s more info on these and many other cash secured put options in our Cash Secured Puts Table:

DowDivStks-PUTS-2011-08-18

Financial Metrics:

DowStks-ROE-8-18-11

IBM, Coke, and McDonalds appear to be the most efficiently run firms, on an ROE/ROI basis. McDonalds and Coke also enjoy the highest operating margins.

Valuations:

DowDivStks-PEG-2011-08-18

Verizon looks to be the most undervalued on a next fiscal year PEG basis. VZ’s earnings have benefited from their Apple iPhone deal, which AT&T formerly had locked up.  Home Depot, Coke, IBM, and AT&T have next year PEG’s approaching the undervalued threshold of 1. (You could actually get to a breakeven cost that would give you a PEG of under 1 for T by selling puts.) The healthcare stocks, JNJ,PFE and MRK, all have low analyst average earnings estimates for their next fiscal year, due to expiring patents, among other issues.

Disclosure: Author is long PG, T, IBM shares and short PG calls.

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

© 2011 DeMar Marketing. All rights reserved.

Astra Zeneca, (AZN)- A Low Debt, High Dividend Healthcare Stock

By Robert Hauver

If you’re looking for a low debt healthcare stock with a high dividend yield within its peer group, Astra Zeneca, (AZN), is one of the best stocks to research first. AZN, which is listed in the Healthcare section of our High Dividend Stocks by Sector tables, closed Friday at $46.78, and pays $2.09/share in dividends, a 4.47% dividend yield.

AZN’s dividend payout ratio is a conservative 41.93%. Their debt-to-equity ratio is 58%, which is in line with the other top dividend paying stocks in the Major Drug Manufacturers group.

Their Price/Free Cash Flow is 11.35, the lowest among the high dividend stocks in this group.

Like many other stocks, AZN had a big run up in 2009, and is just 1.58% below its 52-week high.  More conservative investors may want to consider selling covered calls or selling cash-secured put options on AZN, for a quicker return.

The July 2010 $45.00 put is now bid at $2.85, a 12.2% annualized yield. Conversely, more bullish investors may wish to add to their $2.09/share semi-annual dividend income by selling the January 2011 $50 call options, currently bid at $2.35, for a total static yield of 9.49%. (The early 2009 ex-date was on Feb. 4th, so look for the 2010 ex-date to be somewhere around that period also).

Disclosure: No positions

USMO – A Wireless High Dividend Paying Stock

By Robert Hauver

U.S. Mobility, USMO, currently is the highest dividend paying stock in the telecom section of our High Dividend Stocks Sector tables.

A leading wireless communications provider to healthcare, government organizations, and large enterprise companies, USMO’s has the largest one-way and advanced two-way paging systems in the U.S. They focus on business-to-business, and supply a majority of the Fortune 1000 U.S. firms.

At today’s price of $10.64, USMO  currently has a very attractive dividend yield of 9.40%, and has very attractive financial ratios vs. the wireless communications industry, in our industry comparison table:

USMO Communications Industry
P/E 3.46 17.70
P/Book 1.48 2.45
P/Cash Flow/Share 2.08 6.86
Quick Ratio 2.99 .65
Total Debt/Equity NO DEBT 125.00%
Profit Margin 23.32% 8.12%
ROE 42.35% 8.27%
ROA 28.47% 3.44%
Dividend Yield 9.40% 5.90%

USMO has a well-covered dividend, with a dividend payout ratio of 65.60%.  In addition, they just announced that they’ll continue their share buyback program for the 1st quarter of 2010.

USMO pays a $.25/share dividend on a quarterly basis, and its next ex-dividend  date should be approx. Feb. 13, 2010, with a payout date of approx. March 9, 2010, (this hasn’t been declared yet).

For those investors looking for additional yields or downside protection, there are also option trading strategies available for USMO, such as covered calls, or selling put options.

The July $12.50 call, UEFGV, has a bid/ask spread of  $.35 to $.60, so selling this option in a covered call trade would net you an additional 3.3% over 7-plus months, in addition to the $.50/share in dividends, (4.7%), you’d probably get paid during this period.

If assigned, you’d realize an additional $1.86/share, or 17.48%.

The July $10.00 put, UEFSB, is now bid at $.95, an 8.93% yield for 7-plus months.

All things considered, USMO looks like one of the best stocks in the wireless field.

Disclosure: Author owns USMO shares.

Disclaimer: This article is for informational purposes only.

United Guardian (UG) – A High Dividend Stock with Earnings Growth

By Robert Hauver

With a 5%-plus dividend yield, United Guardian, (UG), is one of the top dividend paying stocks in the Consumer Goods section of our High Dividend Stocks by Sector tables.  UG recently reported record earnings for Jan-Sept. 2009, achieving 20% growth over the same period of 2008.  Net sales were also up 8% compared to Jan-Sept. 2008.

UG negotiated significant price discounts for its main raw ingredient, which cut their cost of sales by 10%, and flowed right through to higher earnings.

The increased earnings has prompted UG to declare a $.32/share increased dividend, payable on Jan. 4, 2010, to shareholders of record on Dec. 18. This dividend brings 2009’s total dividends declared to $.60/share, a 5.77% yield at today’s $10.77 price.

UG also looks like one of the best stocks in the Personal Products group:

United Guardian Personal Products Industry
Debt/Equity NO DEBT 76%
Profit Margin 26.54% 12.50%
P/E 14.87 20.29
Price/Book 3.39 5.54
ROI 35.66 13.88
ROA 21.28 9.98

UG also has a 5-year dividend growth rate of over 40%, vs. an industry average of  11.12%. Their dividend payout ratio is approx. 79%.

Disclosure: No positions yet.

Disclaimer: This article is written for informational purposes only.

A Utility Making The Right Moves – Brookfield Infrastructure Partners

By Robert Hauver

If you’re looking for dividend paying stocks with exposure to overseas infrastructure, AND a high dividend yield, Bermuda-based Brookfield Infrastructure Partners, BIP, may be one of the best stocks to check out.

BIP has the highest dividend in the Utilities section of our High Dividend Stocks by Sector tables.  BIP owns electricity transmission systems, timberlands and social infrastructure in North and South America, the United Kingdom and Australia.

By closing a deal with Australian company, Babcock & Brown Infrastructure, BIP is about to make itself even more attractive by acquiring interests in a broad range of infrastructure projects in more key areas.  These new acquisitions include:  Natural gas pipelines in western Australia, a midwestern U.S. gas pipeline, port concessions in China, a coal terminal in Australia, and other gas and electricity distribution assets in the U.K., New Zealand and elsewhere.

BIP compares quite favorably to its peers in the Electric Utilities industry:

Brookfield Infrastructure Partners Electric Utility Industry Avgs.
Debt/Equity Zero Debt 54.00%
Gross Margin 91.67% 33.48%
P/E 7.63 14.89
Price/Free cash/Share 3.08 18.46
ROA 8.50 2.96
ROI 81.46 3.40

BIP pays a $.265/share dividend quarterly, which is currently a 6.78% dividend yield.

There are also options available for BIP, for those interested in covered calls and covered puts, or cash-secured puts. A possible covered call trade would be to sell the June $17.50 strike, (BIPFW), which has a big bid/ask spread of $.60/$1.60.

Conversely, more skeptical investors might sell the June $15.00 put option, BIPRC, for a 10% yield, ($1.50 bid) , or possibly more, since the ask is at $2.50.

Disclosure: No positions yet.

Disclaimer: This article is written for informational purposes only.

National Health Investors, (NHI) – A Healthcare REIT With Earnings Growth

By Robert Hauver

NHI is listed in the Financial table section of our High Dividend Stocks by Sector Tables .  This month they reported growth in earnings and revenue for the 3-month and 9-month periods ending 9/30/09:

Total revenues for the three months ended September 30, 2009, increased 25.6%.  Net income increased 9.5%. 
Diluted 2009 EPS was $.63 per share vs. $.57 per share in 2008.

Net income for the nine months ended September 30, 2009 increased 8.6%. 
Diluted 2009 EPS was $1.74 per share vs. $1.59 per share in 2008.  Total revenues for the nine months ended September 30, 2009 increased 9.3%.

NHI has investments in real estate and mortgage notes receivable in 125 health care properties located in 18 states consisting of 84 skilled nursing facilities, 15 assisted living facilities, 4 medical office buildings, 4 retirement centers, 1 acute care hospital and 17 residential projects for the developmentally disabled. These investments consisted of approximately $230,658,000 of net real estate investments with 16 lessees and $98,372,000 aggregate carrying value of loans to 14 borrowers.

Of the 76 health care properties leased to operators, 41 are leased to National HealthCare Corporation (“NHC”), a publicly-held company and NHI’s largest customer. The current lease with NHC expires December 31, 2021 (excluding 3 additional 5-year renewal options).

NHI beats its peers handily in several key ratios, including financial strength, valuation, profitability, and management effectiveness, in our Industry Comparison Chart:

NHI Real Estate Operations Industry
Total Debt/Equity 64.00% 199.80%
Profit Margin 87.67% 14.23%
P/E Ratio 15.47 33.37
Price/Free Cash/Share 12.47 38.89
ROE 12.74 4.70
ROI 86.96 1.92
ROA 12.02 1.38

NHI’s current dividend yield is approx. 7%, and it traded on Thursday just below $32.00.

They recently announced that they’ll pay a $.55 dividend on Jan. 29, 2010, to shareholders of record as of December 31, 2009.

For dividend investors looking for solid dividend paying stocks, NHI appears to be one of the best stocks in its industry.

There are no options available for NHI.

Disclosure: No positions

Disclaimer: This article is written for informational purposes only.