2 Defensive Dividend Stocks Outperforming The S&P

By Robert Hauver

Looking to play defense in the market? As the market has vacillated between up and down months since July, income investors are seeking dividend paying stocks with less correlation-i.e., dividend stocks which are defensive during pullbacks, but still share in rallies. It has become more challenging to find such an animal, but they are out there. However, defensive stocks aren’t always the best stocks to buy for growth.  These two giant Healthcare dividend stocks, Lilly and Pfizer, have both outperformed the S&P in 2011, in both up and down markets:

LLY-pfe-perf

Performance-wise, LLY and PFE flip-flopped in the Sept. and Nov. pullbacks and the Oct. rally. Lilly just got a nice boost recently, after an analyst said that LLY’s anti-Alzheimer drug could double the share price, if proven to be effective, which he thought it had a 10-20% chance of.

Dividends:

LLY-PFE-DIVS

Financials: Lilly’ metrics outshine Pfizer’s, and also its Big Pharma peers.

LLY-PFE-ROE

Options: The put and call options trades listed in this article expire in April for LLY, and March for PFE.

Covered Calls: Although Lilly and Pfizer’s don’t have high option yields when compared to other stocks we’ve covered recently, such as CAT or CMI, both of the options trading strategies listed here give you a chance to significantly improve upon these stocks’ dividend yields over this 4-5 month period.

(You can find more details on these and more than 30 high yield covered calls in our Covered Calls Table.)

LLY-PFE-CALLS

Cash Secured Puts:  LLY’s put options offer more yield than PFE’s.  Since PFE and LLY have made 17% to 20%-plus gains year-to-date,  selling cash secured puts below the current stock prices might be the most conservative approach you could take in potentially accumulating shares. (Note: Put sellers don’t receive dividends.)

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

LLY-PFE-PUTS

EPS/Valuations: Due to issues with patent expirations, the future sales forecasts are sub-par for LLY and nearly flat for PFE. As we mentioned earlier though, there’s a trade-off between growth and defense in these stocks.

LLY-PFE-EPS

Disclosure: Author has no positions in LLY or PFE at the time of publication.

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

3 High Dividend Stocks With Heavy Institutional Buying

By Robert Hauver

Wondering what high dividend stocks the big boys have been buying during the pullback? So were we, so we screened for high dividend paying stocks with heavy institutional buying over the past quarter, and came up with 3 foreign dividend stocks –  2 Energy stocks, and a Utility stock, all 3 of which are listed in our High Dividend Stocks by Sector Tables :

NGG-PGH-YPF-INSTIT

Even with these big increases in institutional buying, these 3 foreign dividend stocks still have a lot of room to grow for more institutional ownership.

Financial Metrics:

NGG-PGH-ROE

YPF and NGG pay semi-annual dividends, which is fairly typical of many foreign stocks, while PGH is a former trust which converted to a corporation on Jan. 1, 2011, as did many Canadian trusts, due to the change in Canadian tax laws.

PGH’s anemic Return on Equity of only 4.24% is typical of many Canadian Oil & Gas exploration firms, which finance their expansion through issuing shares, vs. taking on a heavy debt load. Their dividend payout ratio is also misleading, since, like many energy firms and MLP’s, PGH typically gauges its dividends more on distributable cash flow. Their annual earnings release stated that, “During 2010, Pengrowth’s distributions declared and capital expenditures were 95% of operating cash flow (before changes in working capital) with the remaining cash being used for debt reduction.”

Valuations:

NGG-PGH-PEG

Not surprisingly, energy stocks PGH and YPF sport much lower PEG’s for their next fiscal years than utility stock NGG does.  It’s tough to find utility stocks with attractive growth figures, due to the heavy regulation in the utility industry.  Analysts aren’t currently impressed with PGH’s long-term growth prospects however, while YPF has the most attractive 5-year PEG valuation of the group.

PGH’s 1.24 Price/Book valuation is much lower than its peer group avg. of 2.55, while YPF’s 3.54 P/Book is higher than its Integrated Oil & gas peers’ avg. of 2.16.  NGG’s 2.26 P/Book is also higher than its peers.

So, other than high dividend yields, what else is attracting institutional buyers to these stocks?

Here are 2 compelling metrics that may be the answer:

NGG-PGH-EBITDA

2 out of 3 firms have low EV/EBITDA ratios, while all 3 have much lower Price/Cash Flow/Share than their Industry peer groups.

Share Performance/Technical Data:

NGG-PGH-PERF

Another attraction is probably the low beta’s for NGG and YPF. As a utility, NGG has also benefited from its defensive sector being the second leading sector year-to-date, and in the past quarter.

Covered Calls:

You can easily double your dividends by selling covered call options for these foreign dividend stocks, as all 3 have call options that equal or exceed their dividend payouts over the next 7-8 months:

NGG-PGH-CALLS

You can find more details for these and other covered call sales in our Covered Calls Table.

Cash Secured Puts:

If you to be more conservative, selling cash secured put options will give you a lower break-even price, with fairly high option yields also.

You can find more details for these and other put options sales in our Cash Secured Puts Table.

NGG-PGH-PUTS

Note: Put sellers don’t receive dividends – we only list them in our tables for comparison. In the above examples, the put options range up to over 2.5 times the dividends’ values.

Disclosure: No positions yet.

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