This Week’s Top 5 Performing Dividend Stocks

by Robert Hauver
With all of the recent market turmoil, we thought we’d take a look at which dividend stocks performed the best this past week. While these aren’t high dividend stocks, we screened for stocks with a dividend yield above 3%, and a moderate dividend payout ratio.

Not surprisingly, these top 5 dividend stocks are from 2 well-known defensive sectors – Utilities and Consumer Staples, which are also the 2 best performing sectors of the past month.

Performance: These stocks have all outperformed the market this week, and over the past trading month, vs. a -1.36% weekly decline and a -2.07% monthly decline for the S&P 500. One of the big reasons for their strong support by the market right now is that they all have low beta’s, which signifies a low correlation to market volatility.

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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

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.

Microchip Technology – Turnaround Time For A Tech Dividend Stock? – Oct. 24, 2009

By Robert Hauver

Microchip Technology, (MCHP), a tech stock from our
High Dividend Stocks tables
has the second highest dividend yield, 5.13%, in the semiconductors sub-industry. Like most other chip companies, they’ve been hurt in the downturn, as evidenced by their falling revenue and income for the period ending 6/30/09.

However, better news may be in store for investors when the company reports on Nov. 4th. Barron’s recently reported that “channel checks and corporate booking trends suggest that chip companies will beat 3rd quarter estimates”.  Since chip companies have recently lagged the market, there should be some value in some of these stocks, such as MCHP.

MCHP looks good in Industry Comparisons, besting their peers in several key ratios:

MCHP Semi-Conductor Industry
Current Ratio 11.80 3.88
Profit Margin 24.14% .26%
P/E 24.25 40.67
Price/Free Cash Flow/Share 10.85 38.42
ROE 15.93 .18
ROI 36.46 .16
ROA 8.11 .09
Dividend Growth Rate (5 Years) 64.13% 43.79%

MCHP has a low debt-to-equity load of 23%.

The net annualized yield for selling April 2010 $25.00 covered call options
on MHCP is approximately 19% NET, with MCHP’s price of $25.29 today.

MCHP also has 
put options available.  Just check our  Covered Put Tables
for the current annualized yield for selling puts on MHCP.

Value and Income investors looking for dividend paying stocks in the tech sector may want to follow MCHP’s earnings report in early November.

Disclosure: Author doesn’t own shares of MCHP.

A Fashionable High Dividend Stock – Sept. 5, 2009

By Robert Hauver

Is it possible for fashion and high dividend stocks to intersect? In the words, (or letters), of the acronym-obsessed, OMG!

Fashion-savvy investors searching for dividend stocks may be happy to discover that, with it’s 9.5%-plus current dividend yield, apparel licensor Cherokee has, by far, the highest dividend in it’s apparel peer group.  CHKE just announced its 24th consecutive quarterly dividend, which they maintained at $.50, and has paid out over $125 million in dividends to shareholders since 2003.  Their 5-year dividend growth rate is 46.14 %, vs. the industry average of only 3.29%.

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Linn Energy – High Dividend, Low Valuation – August 15, 2009

By Robert Hauver

If you’re an income investor looking for the best stocks to buy, Linn Energy (LINE) may be one of those dividend paying stocks you should take a long look at.
Linn Energy’s, high dividend yield of over 11% is second only to Martin Midstream Partners in the Independent Oil & Gas group, an industry filled with dividend stocks.

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Abbot Foods – A Healthy Dividend Artistocrat – July 31, 2009

By Robert Hauver

In scouring dividend paying stocks lists for potential value/income investments, Abbot Labs (ABT), jumps out as an undervalued, steady stock to investigate  further. Fortunately for bargain hunters, investor worries over future health care legislation and an adverse patent ruling have kept ABT’s price too steady and stagnant this year.  Although ABT isn’t exactly a member of the high dividend stocks community, it is a member of a very elite group of dividend paying stocks.

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The Oldest Dividend Paying Stocks in America – Part 4 July 27, 2008

By Robert Hauver

The final article in this series covers 2 more venerable dividend paying stocks that offer investors secure dividend payouts.  We also examine various strategies for improving their dividend yields.

Colgate-Palmolive, (CL), and John Wiley & Sons, (JW/A), are 2 very old firms that have a long history of paying out dividends.

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The Oldest Dividend Paying Stocks in America – Part 3 July 18, 2009

By Robert Hauver

In this article, we profile two more of the oldest U.S. dividend paying companies, and examine the best way to increase these yields.

Lorillard, (LO), and Valspar, (VAL), are 2 dividend stocks worth taking a deeper look at.

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The Oldest Dividend Paying Stocks In America – Part 1 July 3, 2009

By Robert Hauver

With July 4th rapidly approaching, I started wondering which dividend paying stocks are the oldest companies in America. I also tried to sort out which ones have the best history of paying and increasing dividends, and, just as important, which ones might be healthy enough to actually invest in.

This “Old Timer’s Club” has a mixed membership, in more ways than one:

3 banks, 3 industrial giants, 2 insurance companies, 1 consumer goods manufacturer, 1 publisher, and 1 water utility.

Click here to learn more about America’s oldest companies