Looking for the sweet spot between dividend growth and dividend yield? We parsed the data from S&P 500 dividend stocks through April 30, 2015, to find out which dividend stocks have had strong dividend increases in 2015.
Sector-wise, Consumer Discretionary and Tech S&P 500 stocks had the best combination of overall performance and dividend increases. Even though Healthcare has been the leading sector for ages, it’s not known for having a lot of dividend paying stocks. In addition, this sector’s dividend increases haven’t kept pace with its rising share prices, which has also contributed to a lower overall dividend yield.
We found 3 prospects which had a good combination of dividend yield and dividend increases in 2015, Ford Motor Company (NYSE:F), International Business Machines (NYSE:IBM) and Valero. Valero, (NYSE:VLO), is listed as a Basic Materials stock, but, in addition to wholesaling its refined crude oil products, such as gasoline and ethanol, through bulk and rack marketing network, it also markets them through approximately 7,400 outlets under the Valero, Diamond Shamrock, Shamrock, Ultramar, Beacon, Texaco, and other names, so it reaps the benefit of cheaper crude oil feedstock prices, when it sells gasoline to consumers:
Although these aren’t necessarily high dividend stocks, they all have a dividend yield above the current S&P average yield of 2.03%:
Next Quarterly Dividend Dates:
Options: If you’re looking to ramp up your dividend income, all 3 stocks have fairly high option yields, ranging from 6.15% annualized for Ford, up to 12.81% annualized for VLO.
VLO’s September $62.50 call strike pays $2.36, nearly 6 times its $.40 quarterly dividend.Our Covered Calls Table is now tracking these 3 call selling trades, and over 30 others.
Here are the main 3 scenarios for the Ford covered call trade, which has a $16 strike that’s $.80 above its price/share, and thus offers you price gain potential, as well as call option income:
Put Options: If you’re more conservative, and you want to wait for a lower entry price, selling cash secured puts offers you a way to potentially achieve a lower breakeven, via getting paid a put premium now, when you sell puts below the stock’s price/share.
These put option premiums offer you even higher income than the covered call options- they’re over 3 to 7 times the amount of these stocks’ next quarterly dividends.
Earnings Estimates: Although Ford has the lowest and most undervalued PEG value, (please see Valuations below), VLO wins the prize for increasing analyst estimates. 2015 average estimates have increased all the way from $5.62 90 days ago, to around $6.92 within the past 7 days. It’s also interesting to note how analysts have steadily underestimated VLO’s earnings over the past 4 quarters, which may imply that their estimates for this and next year may be too low:
Valuations: VLO and IBM;s P/Es are closer to the low end of their 5-year ranges, while Ford is at the high end of its 5-year range:
Financials: Other than IBM’s outsized ROE, (thanks to a huge share buyback program), VLO compares a lot more favorably to its industry averages in all of the following categories, including having much less debt.
Performance: VLO has handily outperformed the S&P 500 in all of the following categories, while IBM has outperformed over the past month and year-to-date. Ford has lagged in all these time perods.
Disclosure: Author was short VLO puts at time of publishing this article.
Disclaimer: This article is for informational purposes only, and isn’t intended as investment advice. Author is not responsible for errors or omissions.