3 High Dividend Stocks Going Ex-Dividend Next Week – November 2016

by Robert Hauver
Looking for some extra income for your portfolio? As it happens, 3 of our favorite high dividend stocks in the LNG and Crude Oil shipping industries should be going ex-dividend next week, the week of 10/31/16 through 11/4/16.

We recently added a Services table to our High Dividend Stocks By Sectors Tables, which is where these 3 dividend stocks reside.
Profiles:
GasLog LNG Partners LP: GLOP currently owns a fleet of 8 LNG vessels, which it leases out on fee-based, long term contracts. GLOP was founded and went public in 2014, and is based in Monaco.

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2 High Yield Covered Calls Trades

by Robert Hauver

Looking for quick income from your trading? There are 2 trades sitting near the top of our Covered Calls Table, which offer annualized yields of well over 25%. These aren’t high dividend paying stocks, but, rather, they’re dividend stocks with high options yields.

These 2 stocks couldn’t be more dissimilar. One is a U.S. homebuilder, and the other is a U.S.-based, multinational tech giant:

MDC Holdings (MDC): MDC’s homebuilding business activities include the purchase of finished lots or development of lots for the construction and sale of single-family detached homes to first-time and first-time move-up homebuyers under the Richmond American Homes name. The company’s financial services business activities comprise the origination of mortgage loans primarily for homebuyers; provision of third-party insurance products to homebuyers; and title agency services to homebuyers in Colorado, Florida, Maryland, Nevada, and Virginia. It also provides insurance coverage on homes sold and for work performed in completed subdivisions; and re-insures the claims. M.D.C. Holdings, Inc. was founded in 1972 and is based in Denver, Colorado.

Cisco Systems (CSCO): Cisco designs, manufactures, and sells Internet protocol (IP) based networking and other products related to the communications and information technology industries worldwide. It offers switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, access points, and servers, as well as function as aggregators on local-area networks and wide-area networks; and routers that interconnects public and private IP networks for mobile, data, voice, and video applications.

Dividends: MDC, which pays a $.25 quarterly dividend, paid out its first 3 2013 dividends in December 2012, to help its shareholders avoid higher dividend tax rates in 2013. Not to worry, however, since you can recapture this amount and more, via selling covered calls. (See below)

CSCO made a hefty raise to its quarterly dividend in late 2012, upping it by over 21%, to $.17, from $.14. CSCO also goes ex-dividend on 7/1/13.

Options: MDC currently has an out-of-the-money September $37.00 put which pays $2.65, which equals 7.25%, or 28.46% annualized for this approx. 3-month trade. If MDC moves to $37.00 or higher, your MDC shares will get assigned, resulting in an additional $.46/share gain, for a total potential annualized assigned yield of over 33%.

(You can see more details on this and over 35 other call option trades in our free Covered Calls Table.)

CSCO has a shorter call expiration, a July $25.00 call option, which pays $0.46, offering you a 27.57% annualized yield. This call is also above CSCO’s share price, so if CSCO rises to $25.00 or above, you’ll receive an additional $.18/share.

MDC-CSCO-CALLS

There are also attractive put options selling opportunities for MDC, which you can learn more about, in our free Cash Secured Puts Table.

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short MDC put options, and long CSCO shares 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.

Standard Motor Parts Has Very High Options Yields

Standard Motor Parts, (SMP), had been beaten up after its disappointing 2nd quarter earnings release on May 3rd, but the market has gotten much more revved up about this Industrial dividend stock this summer. SMP received an analyst upgrade in early June, which certainly helped its share price:

Maybe this is why – even after its recent price gains, SMP still looks very undervalued on PEG basis.

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

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

 

2 Dividend Stocks With 25% Covered Call Yields

By Robert Hauver

Looking for dividend stocks with high options yields? With the market moving more towards the upside, call option prices have started to rise accordingly. Here are 2 of the over 30 dividend paying stocks listed in our Covered Calls Table, which each have a combined option and dividend yield of 25% or more:

MGA-TGH-CALLS

Dividends: TGH, which is listed in the Industrials section of High Dividend Stocks By Sector Tables, increased its quarterly dividends to $.40, from $.37 in 2012. This was the 9th consecutive dividend increase for TGH.  MGA increased its quarterly dividends to $.28, from $.25, in the first quarter of 2012.

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

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

The Top Dow Dividend Stocks For First Quarter 2012 Earnings

By Robert Hauver

25 of the 30 Dow Jones Industrials have reported 1st quarter 2012 earnings so far. 18 firms have reported positive growth, and 7 have reported negative growth, with the range running from Boeing, (BA), with 54% year-over-year 1st quarter growth, down to beleaguered Bank of America, (BAC), with -82%. These 2 Dow dividend stocks reported the best 1st quarter 2012 earnings growth year-over-year:

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

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

These Dow Dividend Stocks Are Bucking The April Pullback

By Robert Hauver

It’s been a rainy April for the market thus far, with the S&P down almost -3.00% through 4/19/12. Being  optimistic, we went searching for dividend paying stocks that are bucking the new market pullback.  We found 2 contenders, Caterpillar, (CAT), and Home Depot, (HD), that have held their own in this month’s market decline, and have also done well in recent rallies:

CAT-HD-PERF

HD beat CAT in the Nov. 2011 pullback, and has also had stronger share performance year to date and during this month’s decline.

Valuations & Earnings Growth: CAT derives a lot of its profits from overseas, vs. Home Depot’s mostly domestic focus on the US home market. Subsequently, CAT has had stronger earnings growth in its most recent quarter and fiscal year, as the hobbled US consumer slowly picks up spending, and the home market remains weak. Although it’s up over 18% this year, CAT still looks more undervalued on a PEG basis than HD.

CAT-HD-PEG

We’ll find out if CAT’s current EPS projections hold, when it reports earnings, on its upcoming April 25th morning conference call next week. (Judging by how far off analysts have been in their CAT estimates in recent quarters, it should be an interesting report.)

CAT-ANLYSTMISSES

Dividends: Although CAT and HD aren’t high dividend stocks, both firms have a 5-year dividend growth rate that’s above their industry avgs.: CAT’s is 9.62%, and HD’s is 9.03%. CAT’s dividend payout ratio is more conservative than its industry avgs., while HD’s is much higher than its industry’s low avg. of 26.4%:

CAT-HD-DIVS

Covered Calls: Combining covered call options with dividend stocks is a powerful way to create much more immediate income than many stocks’ dividends offer over 1 – 3 quarters.  The increase in income is particularly high in a stock like CAT, which has high options yields that dwarf its dividend yield.  The tradeoff is that you may forgo potential future price gains, in return for being paid a call option premium now.  CAT has a higher beta and more volatility than HD, which gives it higher options yields.

In this trade, CAT’s August $110.00 call options pay well over 12 times its $.46 quarterly dividend.

CAT-HD-CALLS

If CAT is above $110.00 at or near expiration in August, your shares will be sold/assigned for $110.00, no matter how much higher CAT rises.  You’ll receive an additional $2.64/share in price gain, for an additional assigned yield of 7.54% annualized, and the total potential assigned yield is 25.86%. ($110.00 strike price – $107.36 stock cost = $2.64/share.)

How does this compare to just buying CAT outright at $107.36? Since you received a call premium of $5.95, at a strike price of $110.00, your maximum price point potential is $115.95.  If CAT doesn’t go as high as $115.95 during this 4-month term, you’d be ahead by selling this covered call.

(Each option contract corresponds to 100 shares of the underlying stock.)

The 3 income streams in this covered call trade are, (for 1oo shares of stock bought and 1 call option sold):

1. Call premium of $5.95/share, (paid within 3 days of the trade): $595.00

2. Quarterly dividend of $.46/share, (paid in August, ex-dividend date in July): $46.00

3. Potential assigned price gain of $2.64/share, if CAT is above $110.00 at or near expiration: $264.00

(You can see more details for over 30 other high options yields trades in our Covered Calls Table.)

Technical Data: CAT and HD have been two of the best stocks to buy for price gains over the past year:

CAT-HD-TECH

As the table above shows, both of these stocks are quite close to their 52-week highs, which leads us to another, more conservative options strategy – selling puts.

Cash Secured Puts: By selling cash secured puts below a stock’s current price, you’ll achieve a lower break-even price, and also get paid within 3 days of making the put sale. However, you won’t qualify for any dividends, but, as you can see, the put options listed below pay out over 6 to 14 times what these quarterly dividends pay.

For every put option that you sell, your broker will secure enough cash in your account to purchase 100 shares of the underlyng stock, at whatever the put option’s strike price is, hence the name “cash secured puts”. In the CAT put option trade below, the broker would hold $10,500.00, (100 times the $105.00 strike price).

There are more details on these and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

CAT-HD-PUTS

Financials: Both firms’ metrics are far above their industry avgs, except for CAT’s higher debt load. However, CAT has an interest coverage ratio of 6.4.

CAT-HD-ROE

Disclosure: Author is short Caterpillar put options.

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

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

Heavy Institutional Buying For This High Dividend Stock

By Robert Hauver

Institutional buyers have increased their purchases of Textainer (TGH), by over 12% over the past quarter, pushing its share price up by over 8% thus far in 2012.  Thanks to institutional support, TGH has also been one of the best stocks to buy for price gains over the past 6 months, having risen nearly 40% from its summer lows:

TGH-PERF

TGH-PROFILE

TGH’s institutional support is in stark contrast to its container-leasing industry peers, especially SeaCube, (BOX), which has seen a huge decrease in institutional buying in the past 3 months. The stocks in this group are mostly small caps, ranging in size, from $330M Seacube (BOX), up to $2.04B mid-cap, GATX Corp. (GMT), which is also in the railway business.

Judging by TGH’s industry-low Institutional Ownership, it may have quite a bit of room to gain further support:

TGH-PEERS-INSTITBUYG

Company Profile: Textainer has operated since 1979 and is the world’s largest lessor of intermodal containers based on fleet size. TGH has a total of 1.7 million containers, representing 2.5 million TEU, in its owned and managed fleet, and leases containers to more than 400 shipping lines and other lessees. TGH leases standard dry freight, dry freight special containers, and refrigerated containers. They are one of the largest purchasers of new containers annually, and believe that they’re also the largest seller of used containers, selling up to 100,000 containers per year to more than 1,000 customers. (Source: TGH website)

One reason for Textainer’s popularity with the institutional trade is its hefty 98.6% fleet utilization rate, which increased from 98% in the 3rd quarter of 2011. TGH also increased its net income/share for the first 9 months of 2011 by 40%, and raised its revenue by over 43%.  Container rates have been at historic highs, and, while the company thinks that they may have peaked, they feel that these rates will still remain at a high level for the immediate future. Container demand has been very strong, especially for refrigerated containers, which is a result of the expanding global food distribution business.

Dividends: TGH has had a 75% dividend growth rate since 2007, and also raised its dividend every quarter in 2011, going from $.29, to $.35. TGH is currently listed in the Industrials section of our High Dividend Stocks By Sectors Tables.

Note: TGH’s next ex-dividend date may be later than Feb. 17th, due to the fact that they normally announce their quarterly dividend info at each quarter’s earnings call, and their next earnings call will be on Feb. 14, 2012:

TGH-DIVS

Covered Calls: Although TGH doesn’t have the high options yields that we’ve written about in many other articles, you could still double your dividends on TGH, via selling covered call options. The call option and put option trades listed in the tables below both expire in August 2012. Selling the Aug. $35 covered call would also leave room for big potential price gains, if your shares are assigned/sold.

This is a breakdown of the income from this 6-month covered call trade:

1. Dividend income: $1.05

2. Call option income: $1.10

Total Static Income: $2.15  This is your income if TGH doesn’t rise past the $35.00 strike price, giving you a Static Yield of 6.82% for approx. 6 months, or 13.17% annualized.

3. Potential Price gains: $3.47  This is the difference between the $35.00 strike price and the $31.53 stock price.

4. Total Potential Income: $5.62   This gives you a nominal yield of 17.82% during an approx. 6-month term, or 34.42% annualized.

(You can see many more details for these and over 30 other trades in our Covered Calls Table.)

TGH-CALLS

Cash Secured Puts: Selling cash secured put options can be a lucrative way to “sneak up on a stock”, in that you get paid now to wait. Although put sellers don’t collect any dividends, put options often pay 2 or more times what a stock’s dividends may pay during a short term.

Example: In the put option trade below, let’s say that you sell one Aug. 2012 $30.00 put for TGH.  You’d get paid $2.05/share, or $205.00 within 3 days of the trade, or often even the same day. (1 option contract corresponds to 100 shares of the underlying stock, be it puts or calls.)

When you sell this put option, your broker will reserve $3000.00 in your account, until expiration, to insure that you have enough funds to buy 100 shares of TGH at $30.00.  By selling the put option, you’re obligating yourself to potentially have to buy 100 shares of TGH at $30.00 at or near expiration. In general, most option contracts aren’t assigned until around expiration time, since most option buyers find it more profitable to just buy and sell the options rather than the underlying stock. However, time works against the option buyer, and works in your favor as an option seller, since it steadily erodes the value of an option, the closer it gets to expiration.

Potential Outcomes:

Assignment: If TGH goes below $30.00 at or near expiration, you’ll likely be assigned/sold 100 shares of TGH at $30.00, BUT, your net cost is only $27.95, the $30 strike price, less the Put premium of $2.05.  Therefore, if TGH is anywhere above $27.95, you still can sell it at a profit, or hold onto it.

Static: If TGH doesn’t fall below $30.00 at or near expiration, you won’t get assigned any TGH shares, and your broker releases your $3,000.00 cash reserve.

(Note: You can find more details on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)

TGH-PUTS

Valuations: The industry avgs. below for Most Recent Fiscal Year Growth are skewed higher by the 2 smaller firms, BOX and CAP, both of whom had wild, triple-digit EPS growth gains.  However, their projected growth for their next fiscal year is much more calm, at 9% to 10%, which may be why the institutional buyers aren’t buying these stocks as much as they had in the past.

TGH-PEG

Financials: TGH has better management and financial metrics than its peer industry avgs. Two other negative factor for BOX is that it has Debt/Equity of over 5, and Interest Coverage of only 1.8, both worse than industry avgs.

TGH-ROE

Disclosure:  Author is short TGH put options.

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

Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved

An Easy Strategy For Hedging 2011 Apple Gains

By Robert Hauver

If you were blessed with enough foresight to buy AAPL earlier in 2011 when it dipped, you probably have a profitable unrealized gain right now.  Once again, Apple was one of the best stocks to buy this year for price gains, rising over 24%, from $325.64, to approx. $405.12, as of 12/29/11.

Even though Apple doesn’t currently pay dividends, and isn’t normally part of our coverage of dividend stocks, in last week’s article we wrote about a lucrative, conservative strategy you can use to create your own AAPL dividend that has a higher yield than many high dividend stocks do.

This week’s article details one more way you can create decent income from Apple, and/or, if you now own AAPL shares, you could lock in a good % of 2011’s price gains. With so much uncertainty ahead in 2012 – a US presidential election, ongoing Eurozone debt problems, etc., many forecasters are predicting another volatile year in the market.

Selling Covered Calls is a strategy for hedging some of your downside risk on a stock, that offers you immediate income, and also has tax deferral advantages.  Since you only pay taxes on your options gains for the tax year in which the option expires or is closed out, you can often get tax-deferred use of your option income for 1-2 years.

For example, suppose on Jan. 3, 2012, you sell AAPL call options that expire in Jan. 2013. You get paid the call premium within 3 days of the sale, but you don’t have to report this income and pay taxes on it until April 2014, if you let it expire in Jan. 2013.

You can see more info on over 30 high yield Covered Calls trades discussed in our other recent articles in our Covered Calls Table.

Some of the key decisions to make when selling covered call options are:

1. How far out in time to sell covered calls – Generally, the further out in time you sell, the higher the premium, due to the time value of the options.  The trade-off, however, is the additional uncertainty of going further out into the future. Currently, there are AAPL options available in 2012-Jan, Feb, March, April, and Oct.; Jan 2013; and Jan 2014.  AAPL usually has high options yields and strong volume/liquidity, and there are many options to choose from.

This table below compares the current expiration months, using the same $410.00 strike price, with AAPL’s 12/29/11 price as a cost basis.

Call option premiums increase as you go further out in time, giving you a lower break-even, but a lower annualized yield also:

AAPL-TIME-405

“Static Break-Even” equals the difference between the stock’s cost of $405.12, and the call bid premium for each month’s strike price. If the stock remains static, (it doesn’t rise above the strike price at or near expiration), then the stock usually doesn’t get assigned/sold away from you. You keep your shares, and move on.  If the stock does rise above your strike price, your AAPL shares will get assigned/sold, and you’ll earn an additional profit. (In general, most assignments occur at or near the time of expiration.)

In the above examples, we used a $410.00 strike price, which is $4.88 above the $405.12 cost of AAPL.  This represents your potential assigned gain.  To calculate your total gain, just add the call bid premium to the potential assigned gain. Ex.) For the March 2012 $410.00 call, you’d receive a $21.05 call bid premium. If AAPL rises higher than the $410.00 strike price, most likely your shares will be sold/assigned, and you’ll also earn an additional $4.88 in price gains, for a total gain of $25.93.

How to hedge your 2011 price gains: The table below uses AAPL’s 1/3/11 $325.64 price as a cost basis, and shows what % of AAPL’s year-to-date 2011 profit you could hedge, via selling $410.00 covered calls in different expiration months.  As usual, the further into the future you sell, the higher premium you get, and the more of your profit you hedge, but your annualized yield decreases. (Note: The call bid premium is based upon what the current bid/offer is for each option, as opposed to the ask/sell price. There’s often quite a spread between the two, so you may be able to sell at a higher premium than the current call bid premium):

AAPL-TIME-325

2. Which call option strike price should I sell at – i.e., Should I choose an option strike price closer to, or much higher than the stock’s current price?

Option sellers usually base this decision upon their take on the market, and the stock’s future prospects for price gains.  The more bullish you are on a stock, the further “out of the money”, (above the stock’s current price), you may wish to sell calls at. The reason being that, when you sell a call option, you’re obligating yourself to potentially have to sell the stock in the future, at your sold call option’s strike price, no matter how much higher the stock rises. (Note: 1 option contract corresponds to 100 shares of the underlying stock.)

So, if you feel that AAPL might rise far beyond its current $405.00 price, (as do several analysts), you’d probably choose to sell at a higher strike price than a more bearish investor, who is more interested in locking in current price gains, and creating more immediate income, than in speculating on potential future price gains.  Indeed, that’s one of the other attractions of selling covered calls, you know exactly what your upside potential and your downside break-even are before you make the trade.

The trade-off is that call options further above the stock’s price, (out of the money), have a lower premium than those closer to the stock’s price, (at the money), or below a stock’s price, (in the money).

Here’s a comparison of various strike prices, using $405.12 as AAPL’s cost basis to further illustrate this point:

AAPL-STRIKE-405

Your potential assigned price gain per share increases with each higher strike price. However, your downside break-even price also increases.

The table below compares how much % of year-to-date AAPL profit you can hedge, using different strike prices:

AAPL-STRIKE-325

Again, your % of profit hedged declines, as you sell at a higher strike price, but your potential for additional price gains increases $5.00 with each higher strike price, in this example.

A bullish investor might choose a higher strike price for AAPL, leaving himself more potential for additional price gains on top of the current $79.48 year-to-date profit. (The additional price gains are calculated as the difference between $405.12 and the strike price.)  A less bullish. or conservative investor may wish to sell at a lower strike price, and hedge more of his year-to-date profit.  He’d also have a lower break-even.

Trading Range: If you sold a call at the $420.00 strike price from the table above, your trading range would be:

Max. Price Equivalent of $470.75, ($420.00 strike price plus $50.75 call bid premium), and Downside Break-Even of $274.89, ($325.64 stock cost basis less $50.75 call bid premium).

Valuations: Small wonder that AAPL is so popular with institutional and individual investors, when you consider its strong growth has happened during a period of recession and slow economic growth. 

AAPL-PEG

Financials: There’s not much to quibble about with AAPL’s financial metrics either, although many AAPL shareholders would like to see the company join other Tech firms, such as Cisco, and enter the ranks of dividend paying stocks. However, for dividend investors, selling covered calls and cash secured puts offer 2 lucrative alternatives for creating income from AAPL.

(Note: You can see details on over 30 high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

APPL-ROE

Disclosure: Author is short puts of AAPL.

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

Two High Yield Strategies For Hedging Dow Dividend Stocks

By Robert Hauver

As of  Oct. 27th, the S&P has come back 17% since its nadir of 1099.23 on Oct. 3rd,  leaving some investors nervous about how long the current rally can last. If you’d like to participate in the rally AND have some protection, selling covered calls and/or cash secured put options may interest you.

The key is to use these strategies with dividend stocks that you’re comfortable owning. In our 2 examples, we’ll use Caterpillar, (CAT), which has been one of the best stocks to buy in this current rally, since it’s up more than any other Dow dividend stocks over the past trading month.

Selling Covered Calls to hedge your gains: (You’ll find more details on this and over 30 other high yield covered call trades in our Covered Calls Table.)

If you’d had the prescience to buy CAT on Oct. 3rd, when it began to rise from its year-to-date low of $70.55, all the way to $96.33, (up 36.5% through Oct. 27th), you could hedge over a third of your gain by selling covered call options. Here’s how it works:

(By selling covered calls, you’re committing to sell the underlying shares at whatever strike price you sell the call option at. Each option contract corresponds to 100 shares of the underlying stock, so we’ll use 100 shares of CAT to keep this example clear.)

1. Underlying stock cost/share: $70.55

2. 10/27/11 closing cost/share: $96.33

3. Find the Options Chain for CAT, and click open the May 2012 options. There are call options at a strike price of $97.50, which are selling for $9.55, roughly 37% of the Oct. gains that CAT has made. The idea here is to sell call options above the current strike price, which are “out of the money”. This allows you additional potential price gains if the shares get assigned/sold:

CAT-SWB-CALLS

4. You’d “sell to open”,  one $97.50 call option contract for each 100 shares of CAT that you own.  This obligates you to potentially have to sell your shares of CAT at $97.50 up until the expiration date of May 19, 2012. (US options expire on the 3rd Friday of the month, and are usually deemed expired or assigned during the next 2 days, Saturday or Sunday, by your broker.) In this example, you’d receive $955.00 for each contract you sell. This money is normally credited to your account by online brokers the same day, or within 3 business days of the trade at the latest.  You get paid right away, instead of waiting for the quarterly dividend.

Your breakeven is $60.08, your initial cost of $70.55/share, minus the call option sale of $9.55/share, and minus the $.92/share in dividends you’ll qualify for prior to expiration.

Notice how the call bid premium, $9.55, is over 10 times the dividend of $.92?

CAT-CALLS

Outcome Scenarios For Covered Calls:

1. CAT doesn’t rise above $97.50 – The $97.50 call options expire worthless, leaving you with your $955.00 option annualized static yield of 24.46%, plus the 2 quarterly dividends totaling $92.00/100 shares, and you still own your shares.

2. CAT rises above $97.5o, enough for your shares to be assigned/sold away from you at $97.50/share. In addition to the call option sale money of $9.55/share, your profit also includes $26.95/share, (the difference between the $97.50 and your $70.55 cost), and the 2 quarterly dividends, for a total annualized assigned yield of 95.84%.

Please note: this is an extremely high annualized assigned yield, because of the big price gain involved. If you’d bought CAT at $96.33 on 10/27/11, and it was assigned/sold at expiration in May, your total assigned yield would be 21.96%, which is still very attractive.

In scenario #2, it depends upon whether or not there are any call option buyers who paid a price that’s lower than the difference between the $97.50 strike price you sold the calls at, and CAT’s price near or at expiration. If it’s advantageous, these call buyers would exercise the call option to buy your shares at $97.50. (In general, option buyers tend to exercise call options to buy a stock as it gets closer to the expiration date.)

3. CAT rises above $97.50, but not enough for your shares to get assigned/sold away from you.  In this scenario, it depends upon whether or not there are any call option buyers who paid a price that’s lower than the difference between the $97.50 strike price you sold the calls at, and CAT’s price near or at expiration. The outcome is the same as scenario #1.

Selling Cash Secured Puts: (There are more details on this and over 30 other high yielding cash secured put trades in our Cash Secured Puts Table.)

Suppose you missed the big October move for CAT, and you still want to own it, but you don’t want to pay the current price. Selling cash secured puts at a strike price below the stock’s current price offers you a lower break-even price than the current stock price, and immediate income. However, unlike selling covered calls, you don’t collect any dividends. We’ll use the same May 2012 expiration month for this put option example.

Since CAT closed at $96.33, let’s sell one $95.00 put option, just “out of the money”. This obligates you to potentially have to buy 100 shares of CAT at $95.00/share near or on the expiration date of May 19, 2012. Your broker will reserve/hold $9,500.00 in your account when you sell this $95.00 put, which is the “cash reserved” part of the equation.

As with the call options, these puts pay over 10 times what the dividends pay: $10.15 vs. $.92.

1. You’d “sell to open” 1 put option contract for every 100 shares of CAT that you want to own. You receive $10.15/share, or a total of $1015.00 for each option contract sold.  Your breakeven is $84.85, which equals the $95.00 strike price, minus the put price of $10.15 that you sold for.

CAT-PUTS

Potential Outcome Scenarios For Selling Cash Secured Puts:

1. CAT doesn’t fall below $95.00 – The $95.00 put options expire worthless, leaving you with your $1015.00 profit, a 19.31% annualized  yield.  Your broker releases the $9,500.00 cash reserves in your account.

2. CAT falls below $95.00, but is still above your breakeven – If CAT only falls $5.00, for example, to $90.00, you still may be assigned/sold the 100 shares at $90.00, if it’s advantageous for a put buyer to exercise his put option.

However, since your $84.85 breakeven price is still lower than CAT’s $90.00 price, you could sell these 100 assigned shares and still turn a $5.15/share profit, although it’d be a smaller one than your initial put profit. Or, you might choose to hold the shares for future price appreciation and dividend income.

3. CAT falls below your breakeven – You can “retreat” from an underwater sold put position at any time before expiration, by “buying to close” the sold puts, which closes out the position, and “selling to open” a new put position, at a lower strike price, and/or at a different expiration month.  Generally, the further out in time you sell options, the higher the premiums are, so there’s a chance of recouping a loss by selling longer-dated options.  A good idea is to keep a spreadsheet with your breakeven price vs. the current price of the stock, to monitor your position.  This spread will be different than the price you sold the option for and the option’s current price.

Disclosure: Author is short puts of CAT.

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

© 2011 DeMar Marketing. All Rights Reserved.

Diving For Dividends And Options- 4 Small Caps Selling For Less Than Book Value

By Robert Hauver

With over 69% of stocks above their 50-day moving averages, it’s getting tougher to find bargains in this market, so we went looking for dividend paying stocks with Price/Book values under 1, and found four small caps, two of which are listed in our High Dividend Stocks By Sector Tables.  There are also some pretty high options yields available on 3 of these stocks, (details below).

FLY-NKA-NM-DIVS

All 4 firms have dividend yields above the current S&P average, have a conservative dividend payout ratio, and pay quarterly dividends.

FLY: Leases commercial aircraft, and changed its name from Babcock & Brown in 2007.  FLY owns a fleet of 60 aircraft that it leases under multi-year operating leases to 34 airlines in 23 countries.

NKA: Is the largest independent owner and operator of natural gas storage in North America, with strategically located assets in key natural gas producing and consuming regions.

MCS: Has 2 divisions: Marcus Theatres is the sixth largest theatre circuit in the U.S., with locations in major markets in the Midwest. Marcus Hotels and Resorts, owns and manages 18 hotels, resorts and other properties in nine states.

NM: Operates principally handymax and panamax bulk carriers, deploying owned, chartered and leased vessels. Also owns and operates the largest bulk terminal in Uruguay — one of the most successful and prominent operations of its kind in South America.

Valuations:

FLY-NKA-PEG

There’s a wide spread in the PEG values of these firms, which makes sense, given their 4 disparate industries. FLY’s near-term EPS growth prospects are the lowest in the group, whereas MCS, NKA and NM sport low near-term PEG ratios.

If the economic recovery strengthens, MCS’s theatres and resorts should benefit, whereas NM has a mix of short- and long-term chartered vessels, and has exposure to demand for basic materials, such iron ore, coal, grain, and fertilizer.

NKA’s website states, “The ability to store and retrieve natural gas adds an important dimension to reliability of gas service. Access to storage allows individual gas buyers to acquire low-cost supplies on the spot market during off-peak periods, such as the summer months, and to store the gas in locations near to end-users during periods of peak demand.” 

Financial Metrics:

FLY-NKA-ROE

Although it has the highest debt load, FLY has an interest coverage ratio of 1.6, and NM’s interest coverage is similar, at 1.8. NM’s ROE of 7.54%, although the lowest in this group, is a lot better than its peer average of -6.71%, a result of the drubbing that the shipping industry has taken in recent years.

Covered Calls:

Three of these stocks have options available, which will allow you to greatly increase their dividend yields, via selling covered calls.

The upside: You get paid the call option premium now, (within 3 days of selling calls), you receive up to 5 times the dividend amount in call premiums, and if the option expires or is assigned in 2012, you won’t have to pay taxes on the call options $ you received until 2013.

The downside: Your upside price gains are limited to the approx. threshold of the strike price + call option premium. For example, if you sell NKA $17.50 calls, you’re obligated to sell your NKA shares at $17.50, even if it goes much higher than that. In theory, you’re betting that it won’t go past $18.35, the combination of the $17.50 strike and the $.65 you received for selling the call option.  Also, if your shares are assigned/sold, this lowers your cost basis by the amount of call premium you received. If the call options expire worthless, the call premiums are taxed as a short term gain. You can find more details on these and other covered call trades in our Covered Calls Tables.

FLY-NKA-MCS-NM-CALLS

Cash Secured Puts: Selling cash secured put options is a more defensive way to profit from a stock that you’d like to own, but, whose price is currently too high for you to buy outright.  By selling at a strike price near or below the current share price, (“At the money” or “out of the money”), you’re often able to achieve an even lower break-even price. The same cash flow and tax advantages apply as with covered calls.  You can find more details on these and other covered call trades in our Cash Secured Puts Tables.

FLY-NKA-MCS-NM-PUTS

Technical/Performance Data:

FLY-NKA-PERF

All 4 stocks are below their 50-day avgs., having trended lower over the last quarter. FLY declined the least, having benefited from increasing institutional buying. FLY and NM both have much more room for more institutional ownership.

Disclosure: Author is long shares of FLY.

Disclaimer: This article is written for informational purposes only.