In last week’s article, we showed that the Industrial sector has the 2nd best record for beating & meeting 3rd quarter earnings estimates. It also has the 2nd highest EPS growth estimate for the next fiscal year, trailing only Tech. This week we searched for additional attractive dividend paying stocks in the Industrials sector, focusing on finding the best stocks to buy for growth, valuation, financial metrics, and high options yields:
Covered Calls: Although these aren’t high dividend stocks, you can easily earn a much higher overall yield from them, by combining their dividends with high call options yields.
These call options pay up to 11 times more than the dividends during these 4-5 month trades.
The Static Yield refers to the combination of the call option and dividend yields, which represents your total income if the underlying stock isn’t If the stock doesn’t rise above the call strike price at or near expiration. The Total Potential Yield includes the potential price gain that you’ll realize if the stock’s price does rise above the call strike price. For example, for ETN, you’d receive an additional $1.07/share, if the stock rises above $45.oo and gets assigned/sold away from you at expiration.
Cash Secured Puts: This is a more conservative approach to take: Sell cash secured puts at a strike price below the stock’s current price, so you achieve an even lower break-even price.
As an example, selling ITW $45.00 March put options gives you a $42.20 break-even, which is approx. only 8% above ITW’s 52-week low, as opposed to being over 18% above its low, where it was at the time of publication.
Of course, there’s no guarantee that the stock won’t ge lower than your break-even price, but using this put strategy will decrease your risk more than if you’d just bought the stock outright. As with the call options, there’s a big payoff disparity between the quarterly dividends and the options in these put trades, with put option premiums that are as high as 12 times the dividends.
EPS: The EPS growth for the most recent fiscal year, quarter, and next fiscal year looks solid for all of these stocks:
Valuations: All of these firms have low Price/Sales and Next Year PEG’s that are right around the undervalued threshold of 1.00.
Financials: These firms’ all have low debt loads, and their mgt. ratios are generally in line or better than their peers.
Technical Data: As their Relative Strength is in the low 50’s, all 3 stocks are in the neutral, “not oversold/not overbought” region.
Company Profiles:
Eaton (ETN): Founded in 1911, Eaton is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuels, hydraulics and pneumatic systems for commercial and military use; plus truck and auto drive-train and power-train systems for performance, fuel economy and safety. Eaton has approx. 73,000 employees and sells products in over 150 countries.
Illinois Tool Works (ITW): Another multibillion dollar firm with nearly 100 years of history, ITW designs and manufactures fasteners and components, equipment and consumable systems and a large array of specialty products and equipment for its worldwide customer base. ITW owns more than 840 small businesses, which are decentralized, and operate in various markets, such as: industrial packaging, power systems/electronics, food equipment, and construction products, among many others.
Tyco Int’l (TYC): Tyco is a leading provider of security products and services, fire protection and detection products and services, and industrial valves and controls. Tyco had 2011 revenue of more than $17 billion and has more than 100,000 employees worldwide. Tyco owns the dominant US residential security firm, ADT.
Disclosure: Author has no positions in ETN, ITW, or TYC at the time of publication.
Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.
Covered Calls: Although these aren’t high dividend stocks, you can easily earn a much higher overall yield from them, by combining their dividends with high call options yields.
These call options pay up to 11 times more than the dividends during these 4-5 month trades.
The Static Yield refers to the combination of the call option and dividend yields, which represents your total income if the underlying stock isn’t If the stock doesn’t rise above the call strike price at or near expiration. The Total Potential Yield includes the potential price gain that you’ll realize if the stock’s price does rise above the call strike price. For example, for ETN, you’d receive an additional $1.07/share, if the stock rises above $45.oo and gets assigned/sold away from you at expiration.
Cash Secured Puts: This is a more conservative approach to take: Sell cash secured puts at a strike price below the stock’s current price, so you achieve an even lower break-even price.
As an example, selling ITW $45.00 March put options gives you a $42.20 break-even, which is approx. only 8% above ITW’s 52-week low, as opposed to being over 18% above its low, where it was at the time of publication.
Of course, there’s no guarantee that the stock won’t ge lower than your break-even price, but using this put strategy will decrease your risk more than if you’d just bought the stock outright. As with the call options, there’s a big payoff disparity between the quarterly dividends and the options in these put trades, with put option premiums that are as high as 12 times the dividends.
EPS: The EPS growth for the most recent fiscal year, quarter, and next fiscal year looks solid for all of these stocks:
Valuations: All of these firms have low Price/Sales and Next Year PEG’s that are right around the undervalued threshold of 1.00.
Financials: These firms’ all have low debt loads, and their mgt. ratios are generally in line or better than their peers.
Technical Data: As their Relative Strength is in the low 50’s, all 3 stocks are in the neutral, “not oversold/not overbought” region.
Company Profiles:
Eaton (ETN): Founded in 1911, Eaton is a global technology leader in electrical components and systems for power quality, distribution and control; hydraulics components, systems and services for industrial and mobile equipment; aerospace fuels, hydraulics and pneumatic systems for commercial and military use; plus truck and auto drive-train and power-train systems for performance, fuel economy and safety. Eaton has approx. 73,000 employees and sells products in over 150 countries.
Illinois Tool Works (ITW): Another multibillion dollar firm with nearly 100 years of history, ITW designs and manufactures fasteners and components, equipment and consumable systems and a large array of specialty products and equipment for its worldwide customer base. ITW owns more than 840 small businesses, which are decentralized, and operate in various markets, such as: industrial packaging, power systems/electronics, food equipment, and construction products, among many others.
Tyco Int’l (TYC): Tyco is a leading provider of security products and services, fire protection and detection products and services, and industrial valves and controls. Tyco had 2011 revenue of more than $17 billion and has more than 100,000 employees worldwide. Tyco owns the dominant US residential security firm, ADT.
Disclosure: Author has no positions in ETN, ITW, or TYC at the time of publication.
Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.