VF Corp: Dividend Stock WIth A 20% Option Yield

VF Corp., (VFC), has been one of the best stocks to buy this year for price gains, having outperformed the market thus far in 2012, and is only 9.06% off of its 52-week highs.VFC is among the top 20 Consumer Goods dividend stocks for 2012 performance.

VFC is a $9 billion apparel and footwear powerhouse, with a very diverse, international portfolio of brands and products, including such well known brands as Lee, Nautica, Wrangler, North Face, and Timberland.

Valuations & Growth: With its 2012 run upwards, you can’t really say that VFC is undervalued.  However, its 2012 and 2013 PEG values aren’t that far above the traditional 1.00 threshold:

Dividends: VFC is a member of the S&P Dividend Aristocrats, a group of dividend paying stocks that have increased their dividends every year for at least the past 25 years. The firm posted a big dividend increase in 2012, raising its dividend by over 17%, to $.72/share quarterly, from $.63, which is well above its 5-year dividend growth rate of 6.11%.

With its 2.06% dividend yield, VFC isn’t really part of the high dividend stocks universe, but you can vastly improve upon its dividends by selling covered calls or cash secured puts.
 
Here’s a covered call trade for VFC, that’s listed in our Covered Call Table, along with over 30 other trades with high options yields. This option trade is a more conservative approach, since it uses a $140.00 strike price, which is “in the money”, i.e. below VFC’s current price, which gives you a higher payout. The trade-off is that you sacrifice about 3% of potential price gains.
 
As you can see, the Nov. $140.00 call options outpay VFC’s quarterly dividend by over 15 times:

An even more cautious approach would be to sell cash secured puts below VFC’s stock price. The following trade, from our Cash Secured Puts Table, gives you a breakeven that’s 5% below VFC’s 6/22/12 price. Given the run-up VFC has had, if you’re not so bullish about the market during the summer “doldrums”, this is a way to still profit, but at a lower cost basis, if the stock gets put/assigned to you at expiration in August.

Another way to lower your risk, would be to wait for the next market blowoff, and sell puts below VFC’s price at that time. With the debt dramas in Europe, there will probably be some more down days, when consumer discretionary stocks such as VFC, offer even higher put options payouts:

Financials: VFC’s mgt. efficiency, margin, and interest ratios are all superior to its peers:

Disclosure: Author had no positions in VFC at the time of this writing, but used to wear lots of Wranglers back in the stone age.

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