This Undervalued Dividend Stock Has Momentum And High Options Yields

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 |  About: Standard Motor Products, Inc. (SMP)
by: Double Dividend Stocks

We've been covering undervalued dividend stocks from the Basic Materials sector in our recent articles, some with high dividend yields, and some with high options yields.

This article focuses on a Consumer Goods stock, from the Auto Parts sub-industry. Standard Motor Parts, (NYSE:SMP), has been on a roll since bottoming out below $12.00 this summer, having risen over 50%. It's currently riding along the top of its Bollinger Bands, but is still up only 4.43% year-to-date, as of 12/20/12:

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Undervalued Earnings Growth: Analysts are currently predicting 15%-plus earnings growth for SMP in fiscal 2013, which gives it a low, undervalued .78 2013 PEG. SMP is also still in the lower part of its 5-year P/E range. (Some financial websites are listing a much lower trailing 12 months' P/E, but that figure misses the fact that SMP's 4th quarter 2011 earnings had a one-time benefit of $24.3 million, from a deferred tax allowance. The higher 12.03 P/E figure below strips that benefit out.)

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SMP also had good growth in its most recent quarter, and is estimated to have continued strong growth over the next 5 years which of course, is a long ways out, but still speaks positively for its prospects:

Dividends: During the Recession, SMP eliminated its $.09 quarterly dividend, but reinstated it, at $.05 in 2010, and has since raised it back to $.09.

Call Options: With its high beta, SMP also has some attractive options yields. We've listed this trade, from our Covered Calls Table, in which SMP's May 2013 $22.50 call outpays its next 2 dividends by over 6 times. The $22.50 strike is also $1.56 above SMP's current $20.94 price, which leaves room for an additional 7.44% gain, (18.37% annualized.)

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Put Options: With SMP's big runup, a more conservative way to profit would be to sell Cash Secured Puts below its current price, as in the trade below. This trade offers a higher option yield, nearly 18% annualized, and a break-even that's 11.41% below SMP's current price/share. As with the calls, these puts pay much more than SMP's next 2 dividends.

You can find more details on this and over 30 other Put Options trades in our Cash Secured Puts Table:

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Financials: SMP's management efficiency, debt, and margin figures all outshine its industry's averages:

Technical/Performance Data:

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

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SMP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.