Top Performing Utility Dividend Stocks So Far In 2014

by Robert Hauver
The market has had a bumpy ride so far in 2014, with February turning in the best performance, rising over 4%, after January’s -3.6% pullback. Cap this off with a less than 1% gain for the S&P 500 in March, and you’ve got an unimpressive 1.3% gain for the first quarter:
SP-4-9-14
With this kind of up and down ride, you’d want to find some dividend stocks which offer defense, in addition to income. With the pullback in many biotech stocks, the Healthcare sector no longer leads,(although it’s still up nearly 5%), but has given way to the Utilities sector, which is up over 10% year-to-date.
Here’s a look at the chart for the Utilities ETF, XLU:
XLU-2014-04-08
We looked further into XLU’s top holdings, and came up with these top 5 utility stocks, all of which are large cap dividend paying stocks. Another common feature is that they all have somewhat lower forward P/E’s, meaning that their earnings should improve in their next fiscal year. Duke, DUK, and Southern, SO, have the lowest P/E’s, relative to their 5-year P/E ranges:
UTIL-PE
This is how they’ve performed year-to-date, and over the past month, and over the past 52 weeks. Nuclear-based Excelon, EXC, has outperformed the pack year-to-date, and over the past month, but is still up only 3.62% over the past year. Contrasting with that performance is more steady Next Era Energy, NEE, which has made over half of its 1-year 25.90% gains, by rising 13.61% in 2014:
UTIL-PERF
Dividends: With their 4%-plus dividend yields, Southern CO., SO, and DUK, are both listed in the Utilities section of our High Dividend Stocks By Sector Tables. Although their yields are lower, Dominion, D, and NEE, have the best 5-year dividend growth rates:
UTIL-DIV
Options: If you want to add more downside protection to these stocks, selling covered calls offers you more immediate income, and a lower breakeven. NEE has the most attractive call options of the group. This June $97.50 call pays $2.60, over 3 times NEE’s next quarterly dividend. (Our free Covered Calls Table has more info on this and over 30 other trades.)
UTIL-NEE-CALL
Here are the major income scenarios for this trade. The $97.50 strike price is $1.07 above NEE’s price/share, which amply rewards you if your shares get assigned prior to the ex-dividend date for the $.73 dividend:
UTIL-NEE-CALLINC
Selling cash secured put options is another way to profit from these defensive stocks. In fact, if you sell puts below the stock’s share price, you’ll get an even lower breakeven, and improve upon their defensive nature. This is another June trade, but this put has a $95.00 strike price, and a $92.05 breakeven, which is 4.5% below NEE’s price/share. You won’t receive any dividends, but, just like selling calls, you’ll be paid your option premium within 3 days of the trade, often sooner. You can find more info about this and over 30 other trades in our Cash Secured Puts Table.
UTIL-NEE-PUT
Financials: It’s a mixed bag, Dominion and Next Era have an edge over the rest of the group for some of these metrics, but they do carry more debt:
UTIL-ROE
Valuations: Excelon has the lowest valuations for these metrics:
UTIL-PB
Disclosure: Author was long shares of Southern, SO, at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.

Worthington Industries Is On A Roll

by Robert Hauver

Looking for dividend stocks with market support?

Steel and Metal processor Worthington Industries, (WOR), has been on a roll since the June 4th lows, rising over 42%, vs. the S&P, which has gained approx. 6%. This dividend stock has done better than the Steel & Iron industry, which is up approx. 4% since June 4th, but is still down 9% for the year, vs. WOR’s big 36.72% gain:

Earnings Growth: A big part of the attraction for WOR stems from its EPS growth figures, which show it to still be undervalued on a PEG basis for next year’s earnings:  Click here to read more…
 

Disclosure:  Author had no positions in WOR 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 Bucking The Spring Pullback

By Robert Hauver

The S&P 500 has pulled back approx. 4% since its early April highs, which begs the question, are there any dividend paying stocks that have beaten the market since then?  We took 3 dividend stocks from our High Dividend Stocks By Sector tables, and researched how they’ve done in all of the various rallies and pullbacks since last summer.

These 3 stocks have all held up better than the market in pullbacks, and have also participated in rallies.  Not surprisingly, these defensive dividend stocks hail from the Healthcare and Utilities sectors: NextEra Energy, (NEE), Xcel Energy, (XEL), and Eli Lilly Co., (LLY):

LLY-NEE-PERF-LONG

Click here to read more…

Disclosure: Author had no positions in any of the above stocks 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

The Top Dow Dividend Stocks For First Quarter 2012 Earnings

By Robert Hauver

25 of the 30 Dow Jones Industrials have reported 1st quarter 2012 earnings so far. 18 firms have reported positive growth, and 7 have reported negative growth, with the range running from Boeing, (BA), with 54% year-over-year 1st quarter growth, down to beleaguered Bank of America, (BAC), with -82%. These 2 Dow dividend stocks reported the best 1st quarter 2012 earnings growth year-over-year:

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

Two Auto Parts Dividend Stocks With Undervalued Growth

Since the US auto industry had its best sales quarter in 4 years in Jan-March, and overall world sales are also expected to increase in 2012, you’d think that auto parts companies would be fairly valued already. But, that’s not the case, even with standout growth apparent in some firms. We found 2 solid dividend paying stocks within this sub-industry that are undervalued on many metrics: Magna International, (MGA), a Canadian firm, and Standard Motor Products, (SMP), a US firm. Magna sells its parts to Original Equipment Manufacturers, and Standard sells its parts in both the aftermarket segment and also to Original Equipment Manufacturers. (More detailed profiles are at the end of this article.)

Both of these dividend stocks had strong growth in their most recent quarter, and have good growth forecasts for their next fiscal year. However, their P/E’s are way below industry avgs., making them look undervalued on a PEG ratio basis.  MGA’s current 10.72 P/E is approx. in the middle of its historic P/E range of 7.93 – 14.03, while SMP’s 5.44 P/E is actually below its historic range of  7.24 – 27.97.  Both stocks are also cheap on a Price/Book and Price/Sales basis:

MGA-SMP-PEG

Even though it’s up over 35% in 2012, MGA still looks undervalued.  SMP is down over -24% this year:

MGA-SMP-PERF

Dividends: MGA and SMP both increased their quarterly dividends in 2011 and 2012 – MGA went from $.18 in 2009, to $.25 in 2011, and raised it again, to $.275, in 2012.  SMP raised its dividend from $.05 to $.07 in 2011, and again to $.09 in 2012:

MGA-SMP-DIVS

Covered Calls: Want to rev up the dividend yield on these stocks? You can do it via selling covered call options: Both stocks have relatively high options yields which you can use to turn them into short term high dividend stocks. MGA’s call options yields outpay its next 2 quarterly dividends by over 5 to 1. Click here for a blow-by-blow outline of selling covered calls.

MGA-SMP-CALLS

(You can find more details for over 30 other high options yields trades in our Covered Calls Table.)

Cash Secured Puts: This is a strategy to use if you want to earn some option income now, with the potential of having a stock put, (sold), to you in the future.

SMP has higher put options yields in the 2 trades listed below. SMP’s August $15.00 put currently pays just over 10%, on a 4-month term, for a very high annualized yield of over 33%.

You’re basically getting paid to wait, with the possiblity of having SMP put/sold to you at the $15.00 strike price, if SMP goes below $15.00 at or near expiration. However, your break-even cost would be $13.45, due to the $1.55 put premium you received when you made the put sale.  As with the calls, these put options pay a lot more than the dividends do over the next 4-5 months. (Note: Put sellers don’t receive any dividends.)

Unlike selling covered calls, when selling cash secured put options, you don’t buy the underlying stock first.  Instead, your broker will “secure”, i.e. hold, an amount equal to 100 times the strike price of the put option you sell.  In the SMP example below, you’d sell 1 $15.00 put option.

Since each option corresponds to 100 shares of the underlying stock, your broker would hold $1500.00 for every $15.00 put option that you sell.  At expiration time in August, you’ll either end up with 100 shares of SMP being sold to you, or the $15.00 put will expire worthless.

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

MGA-SMP-PUTS

Financials: Both firms have better Mgt., debt, and margin metrics than industry avgs., but SMP is the winner in all categories, except for debt. SMP has a very impressive Interest Coverage ratio of 17.9:

MGA-SMP-ROE

Profiles:

Magna International: With 286 manufacturing operations and 88 product development, engineering and sales centers in 26 countries on five continents as of Q4 2011, Magna is the most diversified automotive supplier in the world. We design, develop and manufacture automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers (OEMs) of cars and light trucks in our three geographic segments – North America, Europe, and Rest of World (primarily Asia, South America and Africa).

Magna’s capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; metal body & chassis systems; mirror systems; exterior systems; roof systems; electronic systems; powertrain systems as well as complete vehicle engineering and assembly. (Source: MGA website)

Standard Motor Products: SMP is a leading independent manufacturer, distributor and marketer of replacement parts for motor vehicles in the automotive aftermarket industry, with an increasing focus on the original equipment and original equipment service markets.  The company is organized into two major operating segments, each of which focuses on a specific line of replacement parts. The Engine Management Segment manufactures ignition and emission parts, ignition wires, battery cables and fuel system parts. The Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories, and windshield washer system parts. We also sell our products in Europe through our European Segment.

SMP sells primarily to warehouse distributors, large retail chains, original equipment manufacturers and original equipment service part operations in the United States, Canada and Latin America. Our customers consist of many of the leading auto parts retail chains, such as Advance Auto Parts, AutoZone, O’Reilly Automotive/CSK Auto and Pep Boys. (Source: SMP website)

Disclosure: Author had no positions at time of writing this article.

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

How To Buy Apple Below The Market And Earn High Options Yields

By Robert Hauver

Apple, (AAPL), has been much more volatile ever since the US Dept. of Justice announced an investigation into possible e-book price fixing, dropping from its high of $644.00 down to a $572.98 close this week. Adding to the volatility is the anticipation for AAPL’s next quarterly earnings report, scheduled for Tuesday, April 25th.

AAPL has reported spectacular earnings growth over the past 4 quarters, and has surprised to the upside in the “Earnings Surprise” game in 3 of the past 4 quarters. The table below shows the Post-Earnings Share Price changes on the day following each earnings report.

AAPL’s “stumble” in mid – Oct. 2011, when it reported a mere 52% EPS growth and missed inflated analyst expectations, happened during last fall’s high volatility period. The share price only fell -5.59% the day after earnings, but fell from $422.24 to a low of $363.57, (a 13.90% drawdown). during the Nov. market pullback, finally recovering on Jan. 6, 2012, and is currently approx. 36% above its Oct. 18, 2011 price, as of 4/20/12:

AAPL-EARN SURPRISE

After AAPL’s stellar Q1 Fiscal Year report, analysts have kept raising earnings estimates for next Tuesday’s report, with growth forecasts that leave AAPL’s mega-cap peers in the dust.  Looking at AAPL’s past quarterly EPS growth numbers, though, one can hardly blame them for getting so excited.

With estimates and expectations so high, one wonders if AAPL can possibly avoid “disappointing” analysts next Tuesday, while still turning in strong growth figures? Moreover, how will the market react?:

AAPL-Q2-2012 CONSENSUS

So, how can you profit from AAPL’s current volatility and 12.6% pullback?  The prudent approach is probably to wait for next Tuesday’s results and market reaction, but what if AAPL blows out its earnings once again, and soars out of reach?

Fortunately, AAPL has rather high options yields, so, a conservative way to profit in this situation, even if AAPL soars, is to sell cash secured puts below AAPL’s share price, which, of course, is a rapidly moving target. Conversely, if the market is disappointed with AAPL’s report, and its price declines, its put option premiums will rise, including those on the many other strike prices below these put options, resulting in even lower break-even points.

You could sell puts at an even lower strike price in that scenario. As usual, you’ll get paid the put premium price within 3 days of making the trade.

There are 2 variables to this approach – Expiration Month and Strike Price. Here are some examples of the current put options payouts for 2 different put option strike prices that expire in August. Lower strike prices offer lower put premium payouts, but also have lower break-even prices.  The key here is to find a strike price far enough below AAPL’s stock price that achieves the balance between your risk tolerance and your target option income:

AAPL-PUTSTRIKES

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

The next table has examples of the current put options payouts for various expiration months, using the same put option strike price of $580.00. Put premiums are higher for longer expiration dates, which gives you a lower break-even, but a lower annualized yield, due to the longer time period. Again, the more conservative approach is to sell at strike prices further below AAPL’s strike price.

AAPL-PUTMONTHS

AAPL is due to join the ranks of dividend paying stocks sometime in the July-Sept. 2012 quarter, but hasn’t announced its ex-dividend date yet. (Note: Put sellers don’t receive dividends, we list dividends here for comparison only.):

Disclosure: Author is short Apple put options.

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

These Dow Dividend Stocks Are Bucking The April Pullback

By Robert Hauver

It’s been a rainy April for the market thus far, with the S&P down almost -3.00% through 4/19/12. Being  optimistic, we went searching for dividend paying stocks that are bucking the new market pullback.  We found 2 contenders, Caterpillar, (CAT), and Home Depot, (HD), that have held their own in this month’s market decline, and have also done well in recent rallies:

CAT-HD-PERF

HD beat CAT in the Nov. 2011 pullback, and has also had stronger share performance year to date and during this month’s decline.

Valuations & Earnings Growth: CAT derives a lot of its profits from overseas, vs. Home Depot’s mostly domestic focus on the US home market. Subsequently, CAT has had stronger earnings growth in its most recent quarter and fiscal year, as the hobbled US consumer slowly picks up spending, and the home market remains weak. Although it’s up over 18% this year, CAT still looks more undervalued on a PEG basis than HD.

CAT-HD-PEG

We’ll find out if CAT’s current EPS projections hold, when it reports earnings, on its upcoming April 25th morning conference call next week. (Judging by how far off analysts have been in their CAT estimates in recent quarters, it should be an interesting report.)

CAT-ANLYSTMISSES

Dividends: Although CAT and HD aren’t high dividend stocks, both firms have a 5-year dividend growth rate that’s above their industry avgs.: CAT’s is 9.62%, and HD’s is 9.03%. CAT’s dividend payout ratio is more conservative than its industry avgs., while HD’s is much higher than its industry’s low avg. of 26.4%:

CAT-HD-DIVS

Covered Calls: Combining covered call options with dividend stocks is a powerful way to create much more immediate income than many stocks’ dividends offer over 1 – 3 quarters.  The increase in income is particularly high in a stock like CAT, which has high options yields that dwarf its dividend yield.  The tradeoff is that you may forgo potential future price gains, in return for being paid a call option premium now.  CAT has a higher beta and more volatility than HD, which gives it higher options yields.

In this trade, CAT’s August $110.00 call options pay well over 12 times its $.46 quarterly dividend.

CAT-HD-CALLS

If CAT is above $110.00 at or near expiration in August, your shares will be sold/assigned for $110.00, no matter how much higher CAT rises.  You’ll receive an additional $2.64/share in price gain, for an additional assigned yield of 7.54% annualized, and the total potential assigned yield is 25.86%. ($110.00 strike price – $107.36 stock cost = $2.64/share.)

How does this compare to just buying CAT outright at $107.36? Since you received a call premium of $5.95, at a strike price of $110.00, your maximum price point potential is $115.95.  If CAT doesn’t go as high as $115.95 during this 4-month term, you’d be ahead by selling this covered call.

(Each option contract corresponds to 100 shares of the underlying stock.)

The 3 income streams in this covered call trade are, (for 1oo shares of stock bought and 1 call option sold):

1. Call premium of $5.95/share, (paid within 3 days of the trade): $595.00

2. Quarterly dividend of $.46/share, (paid in August, ex-dividend date in July): $46.00

3. Potential assigned price gain of $2.64/share, if CAT is above $110.00 at or near expiration: $264.00

(You can see more details for over 30 other high options yields trades in our Covered Calls Table.)

Technical Data: CAT and HD have been two of the best stocks to buy for price gains over the past year:

CAT-HD-TECH

As the table above shows, both of these stocks are quite close to their 52-week highs, which leads us to another, more conservative options strategy – selling puts.

Cash Secured Puts: By selling cash secured puts below a stock’s current price, you’ll achieve a lower break-even price, and also get paid within 3 days of making the put sale. However, you won’t qualify for any dividends, but, as you can see, the put options listed below pay out over 6 to 14 times what these quarterly dividends pay.

For every put option that you sell, your broker will secure enough cash in your account to purchase 100 shares of the underlyng stock, at whatever the put option’s strike price is, hence the name “cash secured puts”. In the CAT put option trade below, the broker would hold $10,500.00, (100 times the $105.00 strike price).

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

CAT-HD-PUTS

Financials: Both firms’ metrics are far above their industry avgs, except for CAT’s higher debt load. However, CAT has an interest coverage ratio of 6.4.

CAT-HD-ROE

Disclosure: Author is short Caterpillar put 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

Heavy Institutional Buying For This High Dividend Stock

By Robert Hauver

Institutional buyers have increased their purchases of Textainer (TGH), by over 12% over the past quarter, pushing its share price up by over 8% thus far in 2012.  Thanks to institutional support, TGH has also been one of the best stocks to buy for price gains over the past 6 months, having risen nearly 40% from its summer lows:

TGH-PERF

TGH-PROFILE

TGH’s institutional support is in stark contrast to its container-leasing industry peers, especially SeaCube, (BOX), which has seen a huge decrease in institutional buying in the past 3 months. The stocks in this group are mostly small caps, ranging in size, from $330M Seacube (BOX), up to $2.04B mid-cap, GATX Corp. (GMT), which is also in the railway business.

Judging by TGH’s industry-low Institutional Ownership, it may have quite a bit of room to gain further support:

TGH-PEERS-INSTITBUYG

Company Profile: Textainer has operated since 1979 and is the world’s largest lessor of intermodal containers based on fleet size. TGH has a total of 1.7 million containers, representing 2.5 million TEU, in its owned and managed fleet, and leases containers to more than 400 shipping lines and other lessees. TGH leases standard dry freight, dry freight special containers, and refrigerated containers. They are one of the largest purchasers of new containers annually, and believe that they’re also the largest seller of used containers, selling up to 100,000 containers per year to more than 1,000 customers. (Source: TGH website)

One reason for Textainer’s popularity with the institutional trade is its hefty 98.6% fleet utilization rate, which increased from 98% in the 3rd quarter of 2011. TGH also increased its net income/share for the first 9 months of 2011 by 40%, and raised its revenue by over 43%.  Container rates have been at historic highs, and, while the company thinks that they may have peaked, they feel that these rates will still remain at a high level for the immediate future. Container demand has been very strong, especially for refrigerated containers, which is a result of the expanding global food distribution business.

Dividends: TGH has had a 75% dividend growth rate since 2007, and also raised its dividend every quarter in 2011, going from $.29, to $.35. TGH is currently listed in the Industrials section of our High Dividend Stocks By Sectors Tables.

Note: TGH’s next ex-dividend date may be later than Feb. 17th, due to the fact that they normally announce their quarterly dividend info at each quarter’s earnings call, and their next earnings call will be on Feb. 14, 2012:

TGH-DIVS

Covered Calls: Although TGH doesn’t have the high options yields that we’ve written about in many other articles, you could still double your dividends on TGH, via selling covered call options. The call option and put option trades listed in the tables below both expire in August 2012. Selling the Aug. $35 covered call would also leave room for big potential price gains, if your shares are assigned/sold.

This is a breakdown of the income from this 6-month covered call trade:

1. Dividend income: $1.05

2. Call option income: $1.10

Total Static Income: $2.15  This is your income if TGH doesn’t rise past the $35.00 strike price, giving you a Static Yield of 6.82% for approx. 6 months, or 13.17% annualized.

3. Potential Price gains: $3.47  This is the difference between the $35.00 strike price and the $31.53 stock price.

4. Total Potential Income: $5.62   This gives you a nominal yield of 17.82% during an approx. 6-month term, or 34.42% annualized.

(You can see many more details for these and over 30 other trades in our Covered Calls Table.)

TGH-CALLS

Cash Secured Puts: Selling cash secured put options can be a lucrative way to “sneak up on a stock”, in that you get paid now to wait. Although put sellers don’t collect any dividends, put options often pay 2 or more times what a stock’s dividends may pay during a short term.

Example: In the put option trade below, let’s say that you sell one Aug. 2012 $30.00 put for TGH.  You’d get paid $2.05/share, or $205.00 within 3 days of the trade, or often even the same day. (1 option contract corresponds to 100 shares of the underlying stock, be it puts or calls.)

When you sell this put option, your broker will reserve $3000.00 in your account, until expiration, to insure that you have enough funds to buy 100 shares of TGH at $30.00.  By selling the put option, you’re obligating yourself to potentially have to buy 100 shares of TGH at $30.00 at or near expiration. In general, most option contracts aren’t assigned until around expiration time, since most option buyers find it more profitable to just buy and sell the options rather than the underlying stock. However, time works against the option buyer, and works in your favor as an option seller, since it steadily erodes the value of an option, the closer it gets to expiration.

Potential Outcomes:

Assignment: If TGH goes below $30.00 at or near expiration, you’ll likely be assigned/sold 100 shares of TGH at $30.00, BUT, your net cost is only $27.95, the $30 strike price, less the Put premium of $2.05.  Therefore, if TGH is anywhere above $27.95, you still can sell it at a profit, or hold onto it.

Static: If TGH doesn’t fall below $30.00 at or near expiration, you won’t get assigned any TGH shares, and your broker releases your $3,000.00 cash reserve.

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

TGH-PUTS

Valuations: The industry avgs. below for Most Recent Fiscal Year Growth are skewed higher by the 2 smaller firms, BOX and CAP, both of whom had wild, triple-digit EPS growth gains.  However, their projected growth for their next fiscal year is much more calm, at 9% to 10%, which may be why the institutional buyers aren’t buying these stocks as much as they had in the past.

TGH-PEG

Financials: TGH has better management and financial metrics than its peer industry avgs. Two other negative factor for BOX is that it has Debt/Equity of over 5, and Interest Coverage of only 1.8, both worse than industry avgs.

TGH-ROE

Disclosure:  Author is short TGH put 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

2 Easy Ways To Triple Your Yields On Dow Dividend Stocks

By Robert Hauver

Do you think that Dow dividend stocks are the best stocks to buy now for dividends and safety? You’re not alone – the Dow has beaten these other major indexes year to date, and also in November, as of 11/10/11:

11

Although it trails the NASDAQ and the RUSSELL 2000 small caps, the Dow is also nearly even with the S&P 500 since the start of the March 2009 rally.

We found 2 Dow dividend stocks with good metrics and low beta’s, which are therefore less volatile than the market, but which also offer attractive dividends. Coca Cola Co. is also one of the Dividend Aristocrats, a group of dependable dividend paying stocks that have increased their dividends every year for the past 25 years:

CVX-KO-DIVS

You could also more than double your dividends on these stocks, via selling Covered Calls and Cash Secured Puts. (The call and put option trades listed below for CVX expire in June, and those for KO expire in May.)

Covered Calls: One of the big pluses of selling covered call options is that the call option premiums you sell are often more than 2 to 3 times the amount of the dividends during the term of the trade. (See the highlighted areas in the tables below.)

Two other bonuses: You’ll get paid your option premiums within 3 days of the trade, if not the same day, and, you’ll lower your risk by virtue of having a lower break-even price.

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

cvx-ko-calls

Cash Secured Puts: If you want to be even more conservative, and achieve an even lower break-even price, selling cash secured put options below the stock’s current price is an options strategy via which you get “paid now to wait”. Unlike covered call sellers however, put sellers don’t collect dividends.

The put options below pay approx. 4 to 4.5 times more than the dividends during this 6-7 month period.

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

CVX-KO-PUTS

Financials: For the most part, CVX and KO have better metrics than the DOW 30 averages, and both firms also have better metrics than their industry peers.:

CVX-KO-ROE

Valuations/Earnings: Although these monolithic firms certainly wouldn’t be considered growth stocks, they both had strong growth in their most recent fiscal years, and quarter over quarter. Analysts are currently predicting that CVX won’t be able to increase their earnings in their next fiscal year, but they may be wrong, given the volatility of oil prices that have arisen from the socio-political dramas of the Arab Spring, and many other oil-producing parts of the world. Coke has also managed to grow its earnings better than its beverage industry peers.

CVX-KO-PEG

Disclosure: Author is long shares of CVX.

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

A Contrarian Trade: An Oversold Uranium Dividend Stock

By Robert Hauver

Uranium stocks have had a meltdown, in the wake of the Japanese nuclear reactor emergency, causing one of the major players to shed over 30% of its market value in March. We’re talking about Cameco, (CCJ), which produces nearly 16% of the world’s uranium, second only to Kazatomprom, a state-owned producer in Kazakhstan.

Cameco’s CEO states, in a video on their website, that Japan will probably only impact the company’s sales by about 3 to 5%, and that this should be offset by greater Japanese consumption during the coming rebuild. He also points out that the impacted reactor is 40 years old, and that the new plants being built around the world have higher safety specs than the older plants. There are 53 reactors currently under construction and, by 2019, 91 new reactors (net) are forecast to come on line.
Most of this new build is being driven by rapidly developing countries like China and India, which have severe energy deficits and want clean sources of electricity to improve their environment and sustain economic growth. (Source: Cameco website)

CCJ operates in 3 areas: Uranium production, Fuel Services, and Electricity generation (via a 31.6% interest in the Bruce Power Limited Partnership (BPLP), which operates four nuclear reactors at the Bruce B generating station in southern Ontario. Here the 2010 Revenue & Gross Profit contributions by segment:

CCJ-REV

Cameco has several advantages over its competitors:

  • It owns several of the world’s highest-grade uranium deposits. The company’s McArthur River mine in Saskatchewan boasts ore grade concentrations 100 times higher than the industry average.
  • With demand greatly outstripping mine production, producers like Cameco have a stronger hand to play at the bargaining table and have negotiated more favorable contract terms with utility customers.
  • Supply-and-demand dynamics increasingly favor uranium producers. As secondary sources dwindle, sustained high prices will be necessary in order to get mine investments to close the gap between consumption and production. (Source: Morningstar)

Cameco plans to double its uranium production to 40lbs/year by 2018, by further developing its ongoing long-term operations in Canada, Kazahkstan, Australia, and the U.S.

INDUSTRY COMPS:

CCJ-ROE

As you can see, the Uranium industry isn’t a big bastion of high dividend paying stocks. CCJ’s mgt. and debt metrics appear to be in line with their industry averages, and their margins are much higher than the industry averages.

The drastic drawdown in price has now made CCJ’s growth valuations much more attractive:

CCJ-PEG

Although Cameco isn’t part of the world of  high dividend stocks, it does currently offer high options yields of 15%-plus annualized via selling its put options. We chose to sell out to January 2012, to gain more revenue, get a lower break-even, and give the current dark pessimism some time to subside.

Selling Cash Secured Puts for CCJ also gives you a break-even pretty close to CCJ’s 52-week low:

CCJ-PUT

(We’ve added the above put options trade to our Cash Secured Puts Table this week.)

Selling Covered Calls will give you more upside potential than the above put option trade:

CCJ-CALL

(You can find more details on this and other covered call trades in our Covered Calls Table.)

CCJ’s Relative strength is very low at 15.59, and it’s in the oversold range on its stochastic chart.

Disclosure: Author is short CCJ puts.

Disclaimer: This article is written for informational purposes only.

© 2011 DeMar Marketing  All rights reserved.