A Major Oil High Dividend Stock With Undervalued Growth

By Robert Hauver

Are there any “bargain basement” high dividend stocks with strong financials, undervalued earnings growth, and future dividend growth? Surprisingly, British Petroleum, (BP), an energy stock that many investors dumped, after its Gulf oil spill debacle, looks like one of the best stocks to buy once again for these attributes.

Investors have been shunning Big Oil stocks for the past year, so this sub-industry group as a whole is down a bit over -1%. However, unlike two of its larger peers, Chevron, (CVX), and Exxon, (XOM), BP has actually been getting support from institutional buyers in the past few months. Technically speaking, BP is also in the upper region of oversold territory, with its RSI of 35.14:

BP-CVX-XOM-PERF

A lot of this new support has to do with BP’s improving earnings and low valuations.  BP has logged strong EPS growth in its most recent fiscal year, and recent quarter. Surprisingly, BP’s sales growth over the past 5 years topped both Exxon and Chevron, and was just above industry averages.  Although BP is only projected to grow 6.36% in its next fiscal year, its very low P/E gives it an enticing PEG ratio:

BP-PEG

Dividends: After the 2010 Gulf spill, BP needed to eliminate its $.84 quarterly dividend payout for the balance of 2010, but then reinstated in 2011, at 50% less, ($.42/quarter). In 2012, BP has been able to increase its quarterly dividends, for the first time since the spill, raising them over 14%, to $.48/share. BP has been a cash machine for a long time, and as it works through the Gulf settlement payouts, its cash flow will only get even better.

BP foresees future dividend increases, as it stated earlier in 2012: “With operating cash flow generated by BP in 2011 reaching some $22bn – over 60% higher than in 2010 – CEO Bob Dudley confirmed the company’s expectation that net cash flow in 2014, in a $100 oil price environment, would be around 50% higher than in 2011. Half of the additional cash is expected to be used for re-investment and half for other purposes including increased shareholder distributions. 2012 will be a year of increasing investment and milestones as we build on the foundations laid last year. As we move through 2013 and 2014, we expect financial momentum will build as we complete payments into the Gulf of Mexico Trust Fund, restore high-value production and bring new projects on stream.” (Source: BP website)

BP’s dividend yield is now above those of CVX and Exxon, and is also above industry averages:

BP-CVX-XOM-DIVS

Covered Calls: Many income investors have begun selling covered call options in order to increase their income from dividend paying stocks. This options trading strategy is an easy way to double, or even quadruple your dividends, depending on the stock.

If you already own the stock, you can then sell 1 call option contract for each 100 shares that you own. (One option contract corresponds to 100 shares of the underlying stock.)

If you don’t own the stock, here’s the sequence for selling covered calls on dividend stocks:

1. Buy the stock, in 100 share lots – example, buy 200 or 300, instead of 250 shares.

2. Sell 1 call option contract for each 100 shares that you own, at a strike price above the stock’s current share price. The further above the share price you sell, the less premium you’ll receive. The further out in time you sell, the more premium you’ll receive, which will lower your break-even. You receive this option $ within 3 days of selling, often even the same day.

3. Collect whatever quarterly dividends are due, as they pass their ex-dividend dates.

4. At expiration time, if the stock has risen above the strike price, your shares will be sold at the strike price, and you’ll also pocket the difference between the strike price and your cost per share.  If the stock isn’t above the strike price then, the call option will expire, leaving you with the initial call premium $ that you received, plus your dividends, as your profit.

These BP Oct. 2012 call options pay nearly 3 times the amount of BP’s 2 quarterly dividends during this 7-month period. This $45 Oct. 2012 call option also holds a potential assigned yield of 2.66% annualized, ($.65/share, the difference between the $45 strike price and BP’s $44.35 share price.)  The catch is that your BP shares will be sold/assigned at or near expiration time, if BP rises above the $45 strike price.

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

BP-CALLS

Cash Secured Puts: If you’re still wary of BP’s gulf spill headline exposure, an alternative options trading strategy would be to sell cash secured put options, and literally “get paid now to wait”.

The BP OCT. $44.00 put option, which is below BP’s share price, would pay you $3.65/ share, ($365 per option contract). This gives you a lower break-even price, of $40.35.

High Options Yields: This put option pays out 3.8 times what BP’s dividends pay over the next 7 months. In addition, you’ll receive your options premium $ within 3 days of making the trade, often even the same day, so you’ll have the use of this $ now, instead of waiting for the quarterly dividends.  (Note: Put sellers don’t receive dividends.)

If BP is below $44.00 at or near the Oct. expiration, you’ll be sold/assigned 100 shares of BP, for every put contract that you sold.  However, your net cost will only be $40.35, ($44 strike price, minus the $3.65 put bid premium you received when you sold the put).

(You can find more info for this trade and over 30 other high yield Cash Secured Puts trades in our Cash Secured Puts Table.)

BP-PUTS

Financials: While they aren’t quite as impressive as some of Chevron’s and Exxon’s figures, BP’s financial metrics are all above industry averages, with the exception of its operating margin. Although BP’s Debt/Equity ratio is higher than CVX and XOM, BP has a very high Interest Coverage figure of 31.8:

BP-ROE

Disclosure: Author is long shares of BP and XOM, and is short BP 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

The Top 5 US Dividend Stocks For 2012

By Robert Hauver

Which dividend paying stocks paid out the most cash in dividends in 2011? Did they raise their dividends enough to stay among the top US dividend stocks in 2012 for cash payouts? 2011’s winners were all Dow dividend stocks, all raised their dividends in 2011, and have the size and cash necessary to make this short list.

This group paid investors approx. $6 billion to $10 billion-plus in 2011, and appear likely to increase those amounts in 2012, given their historic and recent dividend growth rates. (Although though GE lowered its dividends in 2009, it started increasing them again in 2010, and continued to do so in 2011, with a huge 21% hike):

T-XOM-DIVGROWTH

Pending Quarterly Dividends: These stocks pay quarterly dividends, and three of them are listed in our High Dividend Stocks By Sectors Tables. The projected dividends listed in the following table are all based upon the most recent quarterly dividends paid:

T-XOM-GE-DIV2012

Other than GE, investors rewarded these stocks for their dividend payouts in 2011- their share performance beat the S&P, which returned a big goose egg for 2011.  Chevron, Exxon, and J&J also beat the Dow’s 5.53% return in 2011.  So far in 2012, investors are favoring small caps, but that increased “risk on” approach will probably fade, in favor of large caps, when volatility returns to the market:

T-XOM-PERF

Selling Covered Calls: Even though these stocks don’t have the high options yields that we often write about, you can still substantially increase your dividend yields, via selling covered call options. We’ve listed only options for T, XOM, and GE here, as JNJ and CVX currently have much lower options yields.

In the July 2012 XOM covered call trade below, XOM’s call options sell for nearly 4 times the amount of its next 2 dividends.  The trade-off is that your shares will potentially be sold/assigned if they rise above the $87.50 July strike price for XOM. But you’d also receive a capital gain of $.73/share, the difference between the price/share of $86.77 and the $87.50 strike price, if the shares are sold/assigned.

The call options in the table below expire in Oct., July, and Sept. for T, XOM, and GE respectively.

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

T-XOM-CALLS

Selling Cash Secured Puts: As T, XOM, and GE are all relatively close to their 52-week highs, some investors may choose to sell cash secured puts below the current stock price, in order to achieve a lower break-even entry price.

Selling cash secured put options is an investing approach which pays you to wait: just like selling call options, you’ll get paid now for selling put options. But, if the stock goes below the put strike price at or near expiration, you’ll have it assigned/sold to you for a cost equal to the strike price.  However, your break-even will be lower than the strike price, due to the put premium you receive when you sell puts.

In general, most options aren’t exercised until sometime near or at their expiration date. As an option seller, this works in your favor, as the time value of the option that you’ve sold declines steadily.

The T Jan. 2013 $30.00 put strike price below pays you $3.25, making a break-even of $26.75, which is below T’s 52-week low.  (The puts in the table below expire in Jan. 2013, July 2012, and June 2012 for T, XOM, and GE respectively.)

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

T-XOM-PUTS

Valuations: Although these venerable large caps wouldn’t be considered growth stocks, GE’s PEG ratio is very near to the 1.00 undervalued threshold. XOM has a  negative PEG, due to analysts’ current negative growth forecasts for its next fiscal year. However, as we’ve seen before, oil could rise, or even spike much higher, in reaction to world events, particularly in the Middle East.  XOM has also turned in earnings surprises in 3 out of the last 4 quarters.

Ather issue for XOM is its increased exposure to natural gas via its 2010 purchase of natural gas giant XTO. With supplies coming on, natgas prices are forecasted to drop until US infrastructure can be built up enough to support increased demand.  However, with the current US administration just this week coming out with trucking tax incentives for natgas truck purchases, and other firms building a chain of US natgas fueling stations and liquid natural gas export treminals, demand for natgas may catch up with supply again sooner than later.

T-XOM-PEG

Financials: GE’s debt/equity ratio is much higher than the rest of the group, but it does have an interest coverage of 2.3.  XOM and CVX have metrics that are mostly in line with their Oil Majors peers. JNJ’s numbers are superior to its peers, and, with the exception of a slightly lower ROA, T’s numbers outshine its peers.

T-XOM-ROE

If you’re an income investor, this elite group holds some of the best stocks to buy in 2012 for dependable dividends.

Disclosure: Author is long GE, CVX, XOM, and T shares, and short GE call 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

2 Easy Ways To Triple Your Yields On Dow Dividend Stocks

By Robert Hauver

Do you think that Dow dividend stocks are the best stocks to buy now for dividends and safety? You’re not alone – the Dow has beaten these other major indexes year to date, and also in November, as of 11/10/11:

11

Although it trails the NASDAQ and the RUSSELL 2000 small caps, the Dow is also nearly even with the S&P 500 since the start of the March 2009 rally.

We found 2 Dow dividend stocks with good metrics and low beta’s, which are therefore less volatile than the market, but which also offer attractive dividends. Coca Cola Co. is also one of the Dividend Aristocrats, a group of dependable dividend paying stocks that have increased their dividends every year for the past 25 years:

CVX-KO-DIVS

You could also more than double your dividends on these stocks, via selling Covered Calls and Cash Secured Puts. (The call and put option trades listed below for CVX expire in June, and those for KO expire in May.)

Covered Calls: One of the big pluses of selling covered call options is that the call option premiums you sell are often more than 2 to 3 times the amount of the dividends during the term of the trade. (See the highlighted areas in the tables below.)

Two other bonuses: You’ll get paid your option premiums within 3 days of the trade, if not the same day, and, you’ll lower your risk by virtue of having a lower break-even price.

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

cvx-ko-calls

Cash Secured Puts: If you want to be even more conservative, and achieve an even lower break-even price, selling cash secured put options below the stock’s current price is an options strategy via which you get “paid now to wait”. Unlike covered call sellers however, put sellers don’t collect dividends.

The put options below pay approx. 4 to 4.5 times more than the dividends during this 6-7 month period.

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

CVX-KO-PUTS

Financials: For the most part, CVX and KO have better metrics than the DOW 30 averages, and both firms also have better metrics than their industry peers.:

CVX-KO-ROE

Valuations/Earnings: Although these monolithic firms certainly wouldn’t be considered growth stocks, they both had strong growth in their most recent fiscal years, and quarter over quarter. Analysts are currently predicting that CVX won’t be able to increase their earnings in their next fiscal year, but they may be wrong, given the volatility of oil prices that have arisen from the socio-political dramas of the Arab Spring, and many other oil-producing parts of the world. Coke has also managed to grow its earnings better than its beverage industry peers.

CVX-KO-PEG

Disclosure: Author is long shares of CVX.

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

5 Undervalued Basic Materials/Energy Dividend Stocks

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.

The Top 5 U.S. Dividend Paying Stocks for 2010

By Robert Hauver

Have you ever wondered which dividend paying stocks actually pay out the most money in cash dividends to their shareholders?  We posed this same question in 2009, in our article,           “The Top 5 Dividend Stocks for 2009”, a 3-part series, which identified the 5 firms who paid out the most cash to shareholders, and we explored various ways of investing in and profiting from these dividend stocks.

Four US firms made the top 5 list in 2009: AT&T, GE, Exxon, and Chevron.

In 2009, dividends were eliminated, or slashed by many venerable firms, due to the recession, particularly in the Financial  sector, which formerly accounted for over 20% of 2008 dividends paid out in the S&P, but shrank to paying out less than 10% of the total in 2009.

According to Standard & Poor’s, the average dividend yield in the Telecom Sector has taken the biggest jump so far in 2010, rising from 5.53% in 2009 to 6.29% this year, while the Financial sector has continued its yield decline, from a 2008 average yield of 4.44%, down to 1.22% in 2009, and down again to 1.14% in 2010.

The Telecom sector has many firms listed in our High Dividend Stocks by Sector tables.

Here’s how the Sectors average dividend yields and overall contributions to the overall S&P 500 ranked as of 5/26/10:

INDUSTRY SECTOR

SECTOR DIVIDEND CONTRIBUTION

SECTOR DIVIDEND YIELD

SECTOR DIVIDEND YIELD

5/26/2010

(As of 5/26/2010)

2009

Telecom Services

8.58%

6.29%

5.53%

Utilities

8.04%

4.75%

4.26%

Consumer Staples

17.57%

3.25%

2.96%

Health Care

13.29%

2.37%

2.03%

Energy

12.00%

2.35%

2.05%

Industrials

11.47%

2.28%

2.26%

Materials

3.42%

2.10%

1.76%

Consumer Discretionary

7.74%

1.53%

1.44%

Financials

8.82%

1.14%

1.22%

Information Technology

9.08%

1.02%

0.89%

S&P 500

100.00%

2.10%

1.95%

(SOURCE: Standard & Poor’s)

So, did any of the same top 2009 dividend paying stocks make it to the top 5 for 2010?

As it turns out, 3 out of 4 of these firms are poised to pay out even larger amounts of cash dividends in 2010.  As expected, GE, which cut its dividend in 2009 to $.10/quarter, from $.31/quarter, didn’t make the top 5 this year.

Here’s our list of the projected Top 5 U.S. Dividend Paying Stocks for 2010:

2010 Projected Payouts (in Billions$) Total Projected Annual Dividend/Share
AT &T  (T)

$9.92

$1.68

Exxon  (XOM)

$8.27

$1.76

Johnson & Johnson (JNJ)

$7.93

$2.11

Pfizer (PFE)

$5.81

$0.72

Chevron (CVX)

$5.79

$2.88

We’ve also compiled a list of projected upcoming ex-dividend dates and quarterly payouts/share for these Top 5 dividend stocks.

Projected Upcoming Dividend Dates Projected Quarterly Dividend/Share
AT &T  (T)

7/2/2010

$.42

Exxon  (XOM)

8/11/2010

$.44

Johnson & Johnson (JNJ)

8/27/2010

$.54

Pfizer (PFE)

8/5/2010

$0.18

Chevron (CVX)

8/17/2010

$.72

A looming issue for dividend investors is the status of the qualified dividends tax rate, which is currently at 15% until the end of 2010.  If Congress lets this tax rate simply expire, dividends could be taxed at the old 39.6% rate, which may very well inspire some dividend paying stocks to increase their payments in the fourth quarter, in order to still achieve the lower tax rate.

Disclosure: Author currently holds shares of XOM, T, and CVX.

Disclaimer: This article is written for informational purposes only.

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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