This Hot High Dividend Stock May Still Be Undervalued

by Robert Hauver

Our quest for undervalued high dividend paying stocks keeps leading us back to the Energy sector, which took a beating in the second quarter, but has come back strong since late June. In a previous article, we wrote about Pioneer Southwest Energy, (PSE), an energy stock which had been left behind in the summer rally.

This article focuses on Calumet Specialty Products Partners, (CLMT), an LP which is a combo oil & gas processor/refiner. With its 8%-plus dividend yield, CLMT is listed in our High Dividend Stocks By Sector Tables.  Unlike PSE, CLMT hasn’t been left behind this summer, and has greatly outperformed the S&P since late June.  It also looks closer to being overbought than oversold on its stochastic chart:

Undervalued Thesis: Thanks to a series of acquisitions, CLMT had great growth in 2011, and thus far in 2012, with 2012 EPS estimated at $3.34 on average, a torrid 151% pace. Its long-term 5-year growth projection of 26.81% gives it a very low 0.36 PEG:

Here’s the rub – analysts are currently estimating a -3.89% downturn in EPS for 2013:

But analysts may be underestimating the 2013 earnings impact of CLMT’s acquisitions, if the last 2 quarters are any harbinger of what’s to come. CLMT earned $0.97 in the first quarter, and increased to $1.14 in the 2nd quarter of 2012, an approximately 87% to 100% increase over the previous year’s quarters.

So, if CLMT matches the lower, $.97 1st quarter figure over the next 2 quarters, it would earn $4.05 in 2012, and probably even more in 2013, since it has made more acquisitions since the 2nd quarter, which will be accretive to earnings:

(Source: Yahoo Finance)

Using a risk-adjusted discounted rate of 8.37% vs. future earnings also shows CLMT to be undervalued, with a whopping value of $132.97.

Dividends: After paying its first 2 quarterly distributions of $.63 in 2007, CLMT’s payout slipped to $.45/quarter in 2008-2009, but has increased steadily ever since – $.46 in 2010, form $.47 up to $.50 in 2011, and from $.53 to $.59 in 2012.

Even though it still looks undervalued on a long term basis, given the big run that CLMT has had…

You may want to wait for a pullback, or, alternatively, sell Covered Calls, to achieve a lower break-even cost.

Here’s a trade for CLMT from our Covered Calls Table, which lists 30 other high yield trades:

This 5-month trade offers a few different income scenarios:

1. Static – Maximum income of $2.48, (dividends and call premium), if CLMT doesn’t rise above the $30.00 call strike price near its ex-dividend dates, or at expiration.

2. Assigned – Minimum income of $2.15, ($.85 price gain + call premium), if CMLT does rise above the $30.00 call strike price near its first ex-dividend date, and your shares are assigned. Maximum income of $3.33 if CMLT gets assigned at expiration, AND you collect both quarterly $.59 dividends.

CLMT also has put options available, but the only high yield is on a $30.00 strike price, which is above the current price/share.

Financials: CLMT has good Mgt. Efficiency ratios, but does carry more debt than industry averages. However, it has 4.1 Interest Coverage Ratio. Its Operating Margins should improve, as it integrates its acquisitions.

Company Profile: Calumet is a master limited partnership and is a leading independent producer of high-quality, specialty hydrocarbon products in North America. Calumet processes crude oil and other feedstocks into customized lubricating oils, solvents, waxes and asphalt used in consumer, industrial, and automotive products. Calumet also produces fuel products including gasoline, diesel and jet fuel. Calumet is based in Indianapolis, Indiana and has nine facilities located in northwest Louisiana, northwest Wisconsin, western Pennsylvania, southeastern Texas and eastern Missouri. (Source: Calumet website)

Disclosure:  Author had no positions in any of the stocks mentioned in this article at the time of this writing.

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

3 High Dividend Stocks With Strong Growth And High Options Yields

By Robert Hauver

This week we’re focusing on 3 high dividend paying stocks, from 3 different industries, sectors, and countries – all of which have strong growth over the past year, past quarter, and also have good growth forecasts for their next fiscal year.  This diverse group contains a large cap, mid-cap, and a small cap, all of whom are listed in our High Dividend Stocks By Sector Tables:

BGS-CTEL-PROFILES

(All Company Profiles are listed at the bottom of this article)

Growth & Valuations: All 3 firms had robust earnings growth in their most recent fiscal years, and quarters. Next fiscal year growth is also projected to be good. CTEL and NUE both have low PEG valuations, (P/E to Earnings Growth).

BGS rose 69% over the past 12 months, and is currently trading near the high end of its 5-year P/E range. CTEL is much closer to its 5-year P/E low of 6.21 than its high 5-year high P/E of 39.65.  NUE is also in the low end of its 5-year P/E range, which was very wide: 7.72 to 104.86.  All 3 of these dividend stocks currently have above-average Price/Book ratios for their industries.

BGS-CTEL-PEG

Dividends: NUE is one of the stocks in the Dividend Aristocrats group, and has increased its dividends every year for the past 27 years. CTEL pays semi-annual dividends, and had ex-dividend dates in May and December in 2011, with equal payments of $0.386/share, a 53% increase over 2010’s dividend.  BGS also increased its dividend in 2011, from $.21 to $.23.

BGS-CTEL-DIVS

Covered Calls: All 3 of these stocks have options available , which offer an opportunity to improve upon your dividend yields and improve your cash flow.

The options listed in the 2 tables below have the following expiration months:

BGS: August; CTEL: Sept.;  NUE: July.

Frequently, selling covered call options can offer you much higher, short-term payouts than just collecting dividends. The covered call strategy will give you a second, immediate income stream, since you get paid within 3 trading days when you sell options.  NUE’s call options pay over 5 times the dividend payouts in this 5-month trade listed below.  BGS’s covered call options pay over 3 times more than its dividends pay over the next 6 months.

(You can discover more details for these and over 30 other lucrative option trades in our Covered Calls Table.)

BGS-CTEL-CALLS

Cash Secured Puts: Selling cash secured put options is another options trading strategy that also has high yield, quick cash payouts, such as those listed below.  The put options for NUE outpay the quarterly dividends by over 7 to 1 in this 5-month trade.

The annualized yields below are based upon a 100% Cash Reserve, which is the amount your broker will set aside in your account when you sell put options.  This amount equals 100 shares times the Put Strike Price. We covered more of the specifics of put selling in last week’s article. Unlike call sellers, though, put sellers don’t collect dividends.

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

BGS-CTEL-PUTS

Financials: Even though Nucor’s mgt. ratios look lower than these other 2 firms’, they are actually much better than its steel industry peers. Nucor’s website also says that its “5-year 371% return to shareholders beats all other S&P 500 firms”.  CTEL’s ratios are much higher than its telecom industry peers, plus it’s debt-free, and BGS has a superior ROE and in-line ROA and ROI to its food industry peers.

BGS-CTEL-ROE

Performance & Technical Data: Although these stocks are way above their 52-week lows,  CTEL and NUE are still down vs. 1 year ago, even though they both greatly improved their earnings.

However, investors have been rewarding CTEL and NUE this year, and they’ve been among the best stocks to buy in 2012 for price gains so far:

BGS-CTEL-PERF

Company Profiles:

BGS: B&G Foods and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-stable foods across the United States, Canada and Puerto Rico. B&G Foods’ products include hot cereals, fruit spreads, canned meats and beans, spices, seasonings, marinades, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-style sauces, taco shells and kits, salsas, pickles and peppers and other specialty food products. B&G Foods competes in the retail grocery, food service, specialty store, private label, club and mass merchandiser channels of distribution. Based in Parsippany, New Jersey, B&G Foods’ products are marketed under many recognized brands, including Ac’cent, B&G, B&M, Brer Rabbit, Cream of Rice, Cream of Wheat, Don Pepino, Emeril’s, Grandma’s Molasses, Joan of Arc, Las Palmas, Maple Grove Farms of Vermont, Ortega, Polaner, Red Devil, Regina, San Del, Sa-són Ac’cent, Sclafani, Trappey’s, Underwood, Vermont Maid and Wright’s. (Source: B&G Website)

CTEL: Established in 1992, City Telecom (H.K.) Limited provides integrated telecommunications services in Hong Kong via its own self-built fibre network. City Telecom’s wholly-owned subsidiary, Hong Kong Broadband Network Limited (HKBN), is the fastest growing broadband service provider in Hong Kong. HKBN offers a diversified portfolio of innovative products that service over 1,240,000 subscriptions for broadband, local telephony and IP-TV services.  CTI participated in the investment for construction of submarine cables, including Japan-US Cable to connect the US and Japan across the Pacific Ocean, as well as Asia Pacific Cable Network 2, connecting us to eight districts in Asia and allows direct connection with the major fixed network operators in China. (Source: City Telecom website)

NUE: Founded in 1940, Nucor is the largest steel producer in the US, and is the largest recycler of scrap steel in the world. Nucor produces many steel products, such as structural steel, sheet steel, plate steel, cold finished steel, and wire mesh, and also acts as a raw materials broker in the steel industry. (Source: Nucor Corp. website)

Disclosure:  Author is long BGS and short BGS 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