Halliburton – An Undervalued Blue Chip Dividend Stock

By Robert Hauver

Looking for undervalued dividend stocks? Energy stocks have emerged as the Rodney Dangerfields of the market in 2012, being the only sector that’s still down, (-2.92%), after this new summer rally. However, the sector has pulled an impressive reversal, gaining over 8% since the June 4th lows. Halliburton, however, hasn’t joined in the fun yet, losing -1.52% since June 4th, and is now down almost 14% year-to-date, as of 7/6/12:

HAL-PERF

In addition to being in an out of favor sector, Halliburton’s 2012 earnings are flat, but, if you look to 2013, the picture gets brighter – HAL’s EPS is estimated to grow at over 10%.  Couple this with its historically low range P/E of 8.72, and you have undervalued growth.  We also ran a discounted model for future Earnings growth, with a risk-free rate of 13%, and came up with an intrinsic value of $61.00 for Halliburton.

HAL-PEG

Option trading strategies vs. dividends: Although HAL isn’t listed in our High Dividend Stocks By Sector Tables, it does have some high options yields.

The covered call trade listed below expires in October, and offers a call option premium of $1.68, over 18 times the dividend amount. Since the $30.00 strike is $.93 over HAL’s current strike price, there’s an additional potential assigned yield of over 11% annualized.

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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 Financial Dividend Stocks With Institutional Buying And Solid Growth

By Robert Hauver

After being the worst sector in 2011, and losing over -17%, Financial stocks are among the best stocks to buy in 2012 for price gains thus far, beating all other sectors. Even with this major turnaround, Financials are still down -2.3% over the past year:

SECR-PERF-3-15-12

Part of the recent momentum for Financials came from the Greek debt agreement being signed, and improving US economic data. Another major plus was the Fed’s mainly successful stress tests for major banks this week, but the big impetus is that this sector had much better  2011 4th earnings, even though its sales growth was flat:

SECTOR-EPS

(Data Source: Standard & Poors)

Which Financial sector dividend paying stocks are the big boys buying? It looks like some of the brokerage firms and one exchange are getting institutional support, particularly this small cap stock, Interactive Brokers, which is just -3% below its 52-week high, but only up 10.79% for the past year:

IBKR-PERF

Dividends: Although these dividend yields aren’t as high as some of the High Dividend Stocks we often write about, they all have above-average dividend yields for their industry. In addition, you can improve upon these dividend payouts dramatically by using options trading strategies, such as selling covered call options, (see further below).  *CME also had a special $3.00/share dividend that went ex-dividend in March, and increased its quarterly payouts by 22%, to $1.40, from $1.15, in 2011.

IBKR-CME-DIVS

Valuations: So, why are Institutional buyers so supportive of IBKR? Many reasons: IBKR has a very low PEG ratio, outstanding yearly and quarterly EPS and Sales growth, and its Price/Book and Price/Sales valuations are way below industry averages.  CME also has a low PEG, low Price/Book , and good EPS growth, but buyers are probably worried about potential future gov’t regulations for exchanges, stemming from the MF Global scandal.  Schwab’s PEG is also low, but like CME, its recent quarterly sales slowed vs. Q4 2010:

IBKR-CME-PEG

Financials: All of these stocks have above-avg. industry Mgt. Efficiency Ratio and Operating Margins, and carry a lot less debt than the industry average. IBKR and Schwab go head to head in the online discount brokerage segment, but IBKR has a much higher operating margin:

IBKR-ROE

Covered Calls: If you’re looking to earn more income now from these dividend stocks, but still participate in some potential price gains, selling covered call options above the stock’s current price is one way to go.  Covered Call sellers get paid an often lucrative call premium now, in return for committing to potentially have to sell the underlying stock at a given strike price by expiration time. (Each option contract corresponds to 100 shares of the underlying stock.)

If you’re more bullish on a stock, you’d sell covered call options further above its current price/share, but you’ll give up some immediate call option $ now for potential future price gains down the road. In all of the trades below, the call option premiums are up to 7 times the dividend payouts. (Annualized potential assigned yield equals the difference between the strike price and the stock’s share price, divided by the share price.)

The Annualized Total Potential Assigned Yields listed below are comprised of 3 income streams. The $ amounts for CME are:

1. Dividends: $2.80/share, ($280.00 per option contract sold). You’d collect 2 quarterly $1.40/share dividends.

2. Call option premiums: $18.80/share, ($18.80 per option contract sold). You’d get paid this $ within 3 days of selling the call options, often even the same day.

3. Potential Assigned Price Gains: $3.75/share, ($375.00 per option contract sold). This usually occurs at or near expiration time.

(You can discover additional details for this and over 30 other high options yields trades in our Covered Calls Table.)

IBKR-CALLS

Cash Secured Puts: SInce these stocks have rallied so much in 2012, you may wish you could turn back the clock and dive in at a lower price.  One way you can do this, is by selling cash secured put options at a strike price below the stock’s current price.  You’ll be paid a put premium that is often much higher than the stock’s dividends over the next 2-3 quarters, in return for committing to buy the stock at the put strike price. For example, in the 2 put trades below, these puts pay over 7 to 9 times what the dividends pay. (We listed the dividends for comparison sake only – put sellers don’t receive dividends.)

In the SCHW trade below, you’d be paid $1.10 for committing to potentially buy SCHW at $15.00 by Sept 22, 2012, if SCHW’s price goes below $15.00 at or near expiration time. But, if you end up buying SCHW at $15.00, your cost will only be $13.90, (the $15.00 strike price, less the $1.10 you were paid for selling the put option.

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

CME-SCHW-PUTS

Company Profiles:

Interactive Brokers (IBKR): Over the last 35 years, IBKR has grown internally to become one of the premier securities firms with over $4 billion in equity capital following payment of a special cash dividend of approximately $1 billion pre-tax.

Interactive Brokers conducts its broker/dealer and proprietary trading businesses on over 90 market destinations worldwide. In its broker dealer agency business, IB provides direct access (“on line”) trade execution and clearing services to institutional and professional traders for a wide variety of electronically traded products including stocks, options, futures, forex, bonds, CFDs and funds worldwide. In its proprietary trading business, IB engages in market making for its own account in about 6,500 different electronically traded products. Interactive Brokers Group and its affiliates execute nearly 1,000,000 trades per day.  (Interactive Brokers was named #1 online broker again in 2011 by Barron’s.)

CME Group (CME): An exchange which builds on the heritage of CME, CBOT, NYMEX and COMEX, CME Group serves the risk management needs of customers around the globe. CME provides the widest range of benchmark futures and options products available on any exchange, covering all major asset classes.

Charles Schwab (SCHW): Launched in April, 1971,  as First Commander Corporation, to conduct a conventional broker-dealer securities business and publish the Schwab investment newsletter, Schwab grew to become one of the leading discount brokerage firms, focusing on individual investors.

Disclosure:

Author holds no shares of any stocks mentioned in this article at this time.

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

Linear Tech, (LLTC) – An Undervalued Tech Dividend Stock With Growth Potential

By Robert Hauver

If you’re looking for undervalued dividend paying stocks in the Tech sector, you may want to consider Linear Technology, (LLTC), a firm which designs, manufactures and markets integrated circuits in the Specialized Semiconductor sub-sector.  A recent addition to the Tech section of our High Dividend Stocks by Sector tables, LLTC currently has a 3.26% dividend yield, paying $.23/share quarterly.  You can also increase your yield on LLTC, via options trading strategies, such as selling covered calls or selling put options.

LLTC fares well in our Industry Comparison table:

LLTC Semiconductor Industry
P/E 22.24 28.30
Price/Cash Flow/Share 18.92 22.83

ROE

45.01 10.74
ROA 18.55 8.06
ROI 49.37 9.65
Debt/Equity NO DEBT 19.30

LLTC also offers investors strong prospects for growth. In April, LLTC reported a 100% increase in net income of $.44/share, and a 55% jump in revenue.  Forbes reports that, LLTC’s “trailing 12-month earnings have already replicated its best ever four consecutive quarters”…”subsequent comparisons will necessarily moderate, but likely sustain 25 % to 30% or even higher rates of growth through 2012.” Indeed, using a baseline valuation method, even using a much lower growth rate of 15%, indicates an intrinsic value of $49.36.

Using the current consensus 2011 growth rate of 31% shows a PEG of just .74 for LLTC, which would also indicate that it’s undervalued.

More defensive, income-oriented investors may wish to hedge their bets on LLTC by selling covered calls.  However, they may miss out on a substantial upside gain.

Our Covered Call table lists the Jan. 2011 $30.00 call, which had a bid today of $2.20, an 11.5% annualized yield.  In addition, covered call sellers should receive two dividend payments of  $.23/quarter prior to the Jan. expiration, for a total payout of  $2.66/share.

The total static yield on this 8-month trade would be 9.4%, or 13.9% annualized.  The breakeven on this covered call trade is $25.52.

The potential assigned yield offers an additional $1.06/share, (3.79%), which could increase your total potential assigned yield to 13.29%, or 23.40% annualized.

Alternatively, if you wanted an even lower break-even point, you could sell cash-secured put options. Our Covered Puts table currently lists the Jan. 2011 $25 put, which was bid at $2.05 today, for an 8.2% yield in 8 months, or 12.07% annualized.

This would give you a $22.95 breakeven, which makes LLTC’s $.92/share dividend equate to a 4.1% yield. (These put-selling yields are based upon 100% cash reserve.)  LLTC closed today at $28.18.

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only.

USMO – A Wireless High Dividend Paying Stock

By Robert Hauver

U.S. Mobility, USMO, currently is the highest dividend paying stock in the telecom section of our High Dividend Stocks Sector tables.

A leading wireless communications provider to healthcare, government organizations, and large enterprise companies, USMO’s has the largest one-way and advanced two-way paging systems in the U.S. They focus on business-to-business, and supply a majority of the Fortune 1000 U.S. firms.

At today’s price of $10.64, USMO  currently has a very attractive dividend yield of 9.40%, and has very attractive financial ratios vs. the wireless communications industry, in our industry comparison table:

USMO Communications Industry
P/E 3.46 17.70
P/Book 1.48 2.45
P/Cash Flow/Share 2.08 6.86
Quick Ratio 2.99 .65
Total Debt/Equity NO DEBT 125.00%
Profit Margin 23.32% 8.12%
ROE 42.35% 8.27%
ROA 28.47% 3.44%
Dividend Yield 9.40% 5.90%

USMO has a well-covered dividend, with a dividend payout ratio of 65.60%.  In addition, they just announced that they’ll continue their share buyback program for the 1st quarter of 2010.

USMO pays a $.25/share dividend on a quarterly basis, and its next ex-dividend  date should be approx. Feb. 13, 2010, with a payout date of approx. March 9, 2010, (this hasn’t been declared yet).

For those investors looking for additional yields or downside protection, there are also option trading strategies available for USMO, such as covered calls, or selling put options.

The July $12.50 call, UEFGV, has a bid/ask spread of  $.35 to $.60, so selling this option in a covered call trade would net you an additional 3.3% over 7-plus months, in addition to the $.50/share in dividends, (4.7%), you’d probably get paid during this period.

If assigned, you’d realize an additional $1.86/share, or 17.48%.

The July $10.00 put, UEFSB, is now bid at $.95, an 8.93% yield for 7-plus months.

All things considered, USMO looks like one of the best stocks in the wireless field.

Disclosure: Author owns USMO shares.

Disclaimer: This article is for informational purposes only.

Drilling For Dividends With EV Energy – Oct. 3,2009

By Robert Hauver

If you’re searching for strong dividend paying stocks, make sure that you take a look at our new High Dividend Stocks by Sector tables, where you’ll find some of the best dividend stocks in each industry sector.

EV Energy, (EVEP), which currently tops our Energy Sector table, is one of the best stocks on this list, in terms of their industry comparisons. Not only do they have the highest dividend in the Oil & Gas Drilling/Exploration group, they outshine their peers by many other important metrics:

EVEP Oil&Gas Drilling-Exploration Industry
Dividend Yield 13.01% 2.24%
P/E 1.33 13.45
P/B 0.77 2.85
Current Ratio 8.43 1.3
P/Cash Flow/Share 1.26 8.23
Operating Margin 20% 10.08%
ROE 81.64% 12.58%
ROI 63.00% 6.86%
ROA 45.64% 4.97%

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Bottom Fishing For High Dividend Stocks – Part 3 – June 12, 2009

By Robert Hauver

In the first 2 parts of this series, we used two different conservative option trading strategies from our newsletter to profit from a solid high dividend stock.  Our 6 fundamental screens have given us another great company which is still within reach.

We’ll now take a deeper look at this diversified chemical company, and research some ways to make its high dividend yield even more attractive, while hedging our risk at the same time.

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The Top 5 Dividend Stocks for 2009 – Part 2 – Protecting Your Dividend Yield – May 15, 2009

By Robert Hauver

In part 1 of this article, we identified 2009’s top 5 dividend paying stocks, based on total cash payouts to investors. We also posed the question, “What if you want the dividend income from these stocks, but you’re afraid of a market pullback, or, you think the prices are too high right now?”

1. Royal Dutch Shell (RDS-A, RDS-B) Pays $3.20/share, and currently yields 6.5%.

2. AT&T (T) – Pays $1.64/share, has a current dividend yield of 6.4%.

3. General Electric (GE) GE’s $.82/share 2009 payout currently equals a 6.1% yield. (The payout will decrease to $.10/share per quarter in the 3rd quarter of 2009, so the remaining payout/share for the balance of 2009 will be $.51, a yield of 3.8%, or 5.7% annualized).

4. Exxon Mobil (XOM) The company’s annual dividend rate is $1.60/ share, for a 2.46% current yield.

5. Chevron Corp. (CVX), has an annual dividend/share of $2.60, which equals a dividend yield of 3.8% at the current price.

There are 2 ways you can use options trading to protect yourself from a falling market. In strategy 1 you’ll still earn the dividend income, in addition to your option income. which can often multiply the dividend yield several times over.  In strategy 2, you’ll either end up owning the stock at a lower price and a higher yield, or you’ll earn a very attractive short term yield:

Strategy 1: Sell covered calls.

Strategy 2: Sell covered, (cash-secured), put options.

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Using Put Options To Sneak Up On A Stock” – April 11, 2009

By Robert Hauver

Selling put options is an option trading technique that we often utilize to “sneak up” on the best stocks on our watch list that we want to take a position in.

You may not realize it, but trading options, such as selling covered calls and puts, is a strategy that even many conservative investors use to augment their dividend stock income.

Have you ever found yourself in a position where you’d like to buy dividend paying stocks, but the current prices are just too expensive, and the dividend yield is too low to justify buying right now?

Instead of just buying this stock, take a look at selling puts against it. To illustrate this strategy, let’s look at the data for Kraft Foods, (KFT), which closed this week at $22.35.

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