The Best Defensive Dow Dividend Stocks To Buy

By Robert Hauver

In spite of over 75% of S&P 500 firms beating or meeting earnings expectations, the Eurozone debt crisis, a slow US economic recovery & the continuing DC stalemate on economic issues, plus slower growth in China are combining to scare investors into a “risk off” position in November. The market has pulled back -9.59% this month, nearly as much as the Sept. selloff, as each of the last 5 months have alternated between rallies and pullbacks.

If you’re an income investor looking for which Dow dividend stocks have been the best stocks to buy in recent months for income and defense, these 3 dividend stocks have all sold off less during these 2011 pullbacks, and have also participated nicely in the rallies. (The only exception is HD’s pullback during the July rally.) They’ve also declined even less in this most recent pullback, (Oct. 28 through Nov. 23, 2011), than in the previous Sept. pullback.

HD-KFT-MCD-PERF

Valuations: HD appears to be the most undervalued stock, on a recent and future EPS growth basis. This seems logical, as HD suffered mightily during the downturn, and homeowners still have to fix their homes eventually. HD’s Price/book is higher that the Home Improvement industry avg. of 2.24, but HD’s very low .83 Price/Sales ratio is in line with industry avgs.

HD-KFT-MCD-PEG

High Options Yields can lower your risk and pump up your dividend yields: Although they’re defensive stocks, MCD and HD have options yields which can help you to turn them into virtual, short-term high dividend stocks.

Covered Calls: If you want to buy these defensive dividend stocks, but gain some downside protection, in the form of a quick “rebate”, selling covered call options is one way to go. In these 2 call option selling trades, you’ll get paid over 6 times the dividend amount now, when you sell call options against the underlying shares.

Selling covered calls allows you to realize some of the stock’s upside potential immediately, and turn a 3% annualized dividend yield into a 15% – to – 23%-plus overall yield. The rub is that you’re committing to sell the stock at the option strike price, even if the stock rises far beyond that price by the Feb. or March expiration date. But if you think the stock and the market will  stagnate or swing back and forth during that time period, selling covered calls is a proven way of hedging your bet.

(These call options expire in March for MCD, and expire in Feb. for HD.)

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

HD-MCD-CALLS

Cash Secured Puts: If the recent monthly market reverses have your head spinning , and you want to be more conservative, another strategy is to sell cash secured puts at a strike price below a stock’s current price. This usually offers you an even lower break-even price, which lowers your risk even more, and improves your cash flow, since you’ll get paid put option premiums within 3 days of the trade, (often the same day), instead of waiting for quarterly dividends. (Unlike covered call sellers, put sellers don’t collect dividends.)

Your broker will hold in reserve an amount equal to the value of the strike price times 100, for every put contract that you sell, until the contract expires, or the position is closed out. Each options contract corresponds to 100 shares of the underlying stock.

These put options pay approx. 7 to 8 times more than the stocks’ dividends during this 3-4 month period.

The put options below also expire in March for MCD, and expire in Feb. for HD.

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

HD-MCD-PUTS

Financials: KFT’s Mgt. efficiency ratios are the weakest in the group, and are also below their peer group avgs, while MCD and HD both have above/avg. ROE and ROI for their peer industries.

HD-KFT-MCD-ROE

Technical Data: As usual with defensive stocks, these equities all have low beta’s. MCD and HD are still over 30% above their 52-week lows, but selling the put options listed above would give you a break-even that’s only 19% above MCD’s low, and 21% above HD’s low:

HD-KFT-MCD-BETA

Disclosure: No positions at this time.

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

4 Dividend Aristocrats That Beat The Market Correction

By Robert Hauver

The S&P sank -17.27% from July 7th to its August 8th, causing many portfolio losses. Where can you find some solid dividend stocks to help you through the next market pullback? Try the Dividend Aristocrats – an elite group of dividend stocks that have raised their dividends for at least 25 consecutive years. Four members of the Dividend Aristocrats actually declined less than the S&P, rebounded more, AND are higher than their July 7th marks. Here’s how these four dividend paying stocks performed during and after the market correction:
ED-KO-MCD-HI-LOW
Three of these iconic firms offer basic items: famous brand versions of junk food, soda pop/bottled water, and apparel. Con Ed is the major diversified utility in the metro NY area.

Dividends:
Con Ed is listed in the Utilities section of our High Dividend Stocks By Sector Tables.
ED-KO-MCD-DIVS

Financials:
Although McDonalds and Coca-Cola have very strong mgt. metrics and good margins, further research will show that all 4 firms have lower ROE’s and higher ROI’s than their respective industry avgs. Relatively speaking, however, their reps as safe haven stocks renders them more attractive than their peers during a downturn.

ED-KO-MCD-ROE

Valuations: KO has superior EPS growth stats in the table below, and is the most undervalued on a PEG basis. Of course, utility stocks, such as Con Ed, aren’t known for having great growth figures, due to the heavily regulated environment in which they operate.
ED-KO-MCD-PEG

Two strategies that will bolster the defensive strength of these stocks are selling covered calls and cash secured puts.

VFC has the highest options yields of these 4 stocks, and we’ve listed it in our Covered Calls and Cash Secured Puts Tables, along with many other option selling trades.
The call and put premiums for VFC’s Feb. 2012 options are over 8 times the dividend amount during this 6-month term.

Covered Calls:

ED-VFC-CALLS

Cash Secured Puts:
ED-VFC-puts

Disclosure: No positions at this time.

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

© 2011 DeMar Marketing. All Rights Reserved.

Dividends vs. Puts – A Short Term Profit Strategy – Aug. 29, 2009

By Robert Hauver

With the S&P 500 up over 50%, and the Dow up over 45% since March 9th, many investors are still on the sidelines, chewing on sour grapes, and still wondering if this incredible rally is going to last.

What can you do if you got left behind by the current rally, but still want to make a profit?

Click here to find out…