How To Turn Dividend Aristocrats Into High Dividend Stocks

By Robert Hauver

The Dividend Aristocrats are thought by many dividend investors to be the best stocks to buy for dependable dividends. This makes sense, since these dividend stocks have raised their dividends every year for the past 25 years. However, even with investors scrambling for low risk yield, some of these dependable dividend paying stocks are out of favor in the market, and appear undervalued:




Valuations: ADM and WAG both have low PEG’s for next year and the next 5 years. They also have very low Price/Sales and Price/Book ratios. WAG has been discounted by the market this year, as a result of its ongoing negotiation with Express Scripts, over pay rates for prescription drugs. If WAG drops the Express Scripts deal, (approx. up to 5% of revenue), they estimate it’ll take off $.21/share from its 2012 earnings, which will put WAG’s projected 2012 earnings about flat with 2011.

Options: Although ADM and WAG aren’t high dividend stocks, you can easily earn a high yield on them, via selling options.

(These put and call option trades all expire in March for ADM, and April for WAG.)

Covered Calls: These 2 trades have call option premiums that will pay you 9 to 12 times the amount of the dividends during the 4-5 month terms. (See the highlighted areas in the tables below.)

Other bonuses: You’ll get paid your option premiums within 3 days of the trade, (often the same day),  and you’ll lower your risk via having a lower break-even price.

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


Cash Secured Puts: If you’re wary of this current market, and you’d like to be even more conservative, another strategy is to sell cash secured puts at a strike price near or below the stock’s current share price. You can often achieve an even lower break-even price, as seen below with WAG, and lower your risk even more. Selling cash secured put options is a strategy via which you get “paid now to wait”. However, unlike covered call sellers, put sellers don’t collect dividends.

The put options below pay approx. 11 to 13 times more than the dividends during this 6-7 month period.

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


Earnings: Although WAG and ADM aren’t growth stocks, they both had strong EPS growth quarter-over-quarter, and are projected to grow at steady rates during their next fiscal year:


Financials: ADM just announced this week that it will build a 265 million liter (70 million gallon) biodiesel plant in  Alberta, Canada, which will increase ADM’s North American biodiesel production capacity by 50%. Biodiesel produced at ADM’s facility in Lloydminster will help fulfill Canada’s renewable diesel mandate. (Since July 1, 2011, all diesel fuel and heating oil sold in Canada must contain at least 2 percent biodiesel.)

ADM, as the 2nd largest ethanol producer, has had its ethanol margins squeezed by ongoing rising corn prices, hence the lower than avg. operating margin seen below:


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