Cummins – An Oversold And Undervalued Dividend Stock

By Robert Hauver

The market has fallen out of love with stalwart Industrial dividend stock Cummins, (CMI), sending its shares down over 16% in May.  Lowered guidance from fellow equipment maker Joy Global, (JOY), has also helped to depress CMI’s shares this week. JOY cut its guidance approx. 3.4 to 4.5%, down to a $7.15 to $7.45 range, and trimmed its revenue guidance by approx. 1.8%, based on weaker mining equipment demand from US coal miners.

Here’s the anomaly and the opportunity: JOY’s coal mining equipment business is slowing in the US because of the ongoing natural gas boom, which is causing utility and other power users to switch from more expensive, dirtier coal, to cheaper, cleaner natural gas.  BUT, as the biggest natural gas and hybrid bus engine manufacturer in the US market, Cummins will gain from this shift from coal to natural gas, as more fleet owners switch to these natural gas  and hybrid engines.

How to play it:  Click here to read more…

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

Microchip Technology, (MCHP) – A Tech Dividend Stock With High Option Yields

By Robert Hauver

Microchip Technology, (MCHP), is a dividend paying stock listed in the Tech section of our High Dividend Stocks by Sector tables.  MCHP’s current dividend yield is 4.66%. MCHP is a leading provider of microcontroller and analog semiconductors, and is based in Arizona.  The firm recently upped its earnings guidance for Q4 fiscal 2010, from $.34/share to $.42, (non-GAAP), citing stronger bookings and sales.  They also expect sales to be up 8%.  MCHP reports earnings this coming week, on May 5th.

MCHP recently bought Silicon Storage Technology, whose SuperFlash technology is used widely in advanced microcontrollers.  MCHP will now be able to embed this technology in its microcontrollers, which is their core business.

Although its debt load is slightly higher than its peers, MCHP’s balance sheet is solid, and this firm fares well overall in our Industry Comparison table:

MCHP Semiconductor Industry
Current Ratio 7.79 3.72
Debt/Equity 22.85% 19.30%
Profit Margin 19.47 10.60
Price/Free Cash/Share 10.85 25.15
ROE 13.11 10.12
ROI 36.46 9.10
PE 33.19 28.85

MCHP’s current PE looks a bit rich vs. its peers.  Investors looking to lower their breakeven costs could do so by selling covered calls on MCHP.  Our Covered Calls Table currently lists the October $30.00 call option, (QMT10J1630.0), for MCHP as having a 16%-plus annualized static yield, and an assigned annualized yield of nearly 23%.  Your breakeven cost on this options trade would be $26.98, Friday’s closing price of $29.21, minus the $2.23 in call and dividend money from the trade.

An additional strategy for lowering your breakeven cost would be to sell MCHP put options. The October $30.00 put option listed for MCHP in our Put Selling table is currently worth a $3.00 bid, which equals a 10% nominal yield, or 22%-plus annualized. Your breakeven would be $27.00 on this options trade.  (These percentages are based upon 100% cash reserve).

Disclosure: No positions in MCHP at this time.

Disclaimer: This article is written for informational purposes only.

GOL Linhas Aereas, (GOL)- A Brazilian Growth Stock With High Put Option Yields

By Robert Hauver

GOL Linhas Aereas Inteligentes, (GOL), is a new addition to our Covered Put Tables, and currently has the highest annualized put yield at over 26%. GOL is a low-cost, low-fare regional airline, (the biggest in Latin America), with routes connecting all of Brazil’s cities and from Brazil to cities in South America and many Caribbean destinations.

GOL is seeking government approval for a code-sharing program with Delta, which would initially allow Delta to sell tickets on more than 45 GOL flights within Brazil. The deal also will cover two GOL flights between Brazil and Paraguay and Uruguay.

This undervalued dividend paying stock appears to be a good way to play internal growth in Brazil.

GOL soars above its regional airline industry peers in our Industry Comparison Table:

GOL Airline Industry
PEG .44 1.79
PE 6.1 18
Profit Margin 14.78% -1.24%
Long-Term EPS Growth 11.00% 4.00%
Long-Term Revenue Growth 21% 2.00%
ROE 48.39% – 6.14%

GOL closed Friday at $13.08, and recently paid an annual dividend of $.398/US ADR, which equals a 2.98% dividend yield.  (Many financial websites are incorrectly listing GOL’s yield as over 12%, but the $.39 is not a quarterly payout).

However, you can still earn over 12% right now, by selling October $12.50 put options for GOL, (GOL10V1612.5), which closed at $1.60 on Friday, for a 12.8% nominal yield, or 26.16% annualized.

Disclosure: Author is short GOL puts.

Disclaimer: This article is written for informational purposes only.

One Beacon Insurance (OB) -A High Dividend Insurance Stock With Juicy Options Yields

By Robert Hauver

One Beacon Insurance, (OB), is a recent addition to the Financials section of our High Dividend Stocks by Sector tables.

This Bermuda-based, dividend paying stock traces its roots all the way back to 1831, as the Potomac Fire Insurance Co.

OB recently returned to profitability in Q4 2009, posting  earnings of  $.76/share, vs. a -$1.81/share loss in Q4 2008.

They also were quite profitable for full year 2009, with earnings of $3.60/share, vs. a -$3.99/share loss in 2008.

The company also had 31% growth in book value in 2009, and a slightly improved combined ratio of 94%.

(Combined ratio measures an insurance firm’s incurred losses and expenses, divided by its earned premiums, and doesn’t include investment income.)

OB is a company is transitioning into a Specialty insurance firm, having recently sold its Commercial Lines and Personal Lines businesses, a move they say will significantly lessen their catastrophe exposure, and add greater profits, in addition to freeing up significant capital.

Withstanding its higher debt load, One Beacon has many favorable metrics in our Industry Comparison Chart:

One Beacon (OB) Insurance Industry Peer Group
Dividend Yield 5.56% 2.57%
P/E 4.2 12.81
PEG .84 1.49
ROE 26.47% 7.95%
ROA 4.45% 3.41%
5-Year EPS Growth 17.58% 6.33%
Debt/Equity .43 .25

OB closed at $15.12 on Friday, and its current dividend yield is 5.56%.  Last week they declared a $.21 quarterly dividend,payable on March 31, to shareholders of record as of March 17th.  In addition to this attractive dividend, OB has some juicy call and put options, for investors interested in trading options, i.e., selling covered calls, or selling cash-secured put options:

Price March 5, 2010 Dividend Pre-Expiration Dividend Yield (Annual’d) August $15 Call Bid Price Call Yield (Annual’d) Total Static Yield (Annual’d) Total Assigned Yield  (Annual’d)
$15.12 $.42 6.0% $1.20 17.2% 23.2% 21.5%
Aug. $15 Put Bid Price Put Yield (Annual’d) Based on 100% Cash Reserve Breakeven
$15.12 $1.50 21.7% $13.62

The put option yield is over 3.5 times the dividend yield at present.

Disclosure: No positions yet.

Disclaimer: This article was written for informational purposes only.

Bottom Fishing For High Dividend Stocks – Part 2 – June 7, 2009

By Robert Hauver

In Part 1, we found a high dividend paying stock with an excellent balance sheet and many other competitve attributes.  By using a strategy from The Double Dividend Stock Alert, we doubled its already high dividend yield, and achieved a 23%+ cash yield.

But what if you wanted to be even more conservative, but still make money from this member of the high dividend stocks group? Selling put options is another option strategy you can use to achieve a very competitive, short-term high yield.

Click here …to learn more.