Chipotle Mexican Grill Inc. (CMG), F5 Networks Inc. (FFIV) and Polypore International Inc. (PPO) are three profitable and growing companies that may not pay dividends, but investors can create attractive synthetic dividends on their stocks with options. In this article, we’ll take a look at why these stocks may be worth a buy and how to create a virtual dividend using call options.
Chipotle is Still Mouth-Watering
Chipotle Mexican Grill Inc. (CMG), an owner and operator of more than one thousand premium Mexican restaurants throughout the United States, represents an attractive investment opportunity. Earlier this week, Credit Suisse initiated the stock with an Outperform ratings and $370 per share price target, which represents a significant 26.4% premium to the current market price.
With the stock in decline since mid-September, many investors may wish it offered a dividend. Luckily, they can create a synthetic one by selling call options. For example, the 320 Nov ’11 calls are trading at 14.80 per contract. By selling one contract per 100 shares owned, investors could realize a 60% annualized dividend yield in exchange for agreeing to sell at a 10% premium to the current price.
F5 Networks Could Surpass Estimates
F5 Networks Inc. (FFIV), a provider of technology that optimizes the delivery of network-based applications and the security, performance and availability of devices on networks, could be ready to post a big quarter. According to William Blair, channel checks have shown that the company is ramping up for a big fourth quarter, and the analyst would be aggressive buyers at current levels.
With this stock also dropping more than 30% over the past three months, investors may also be looking for a dividend to help lessen the pain. In this case, investors can sell the 80 Nov ’11 calls are trading at 4.55 per contract. By selling one contract per 100 shares owned, investors could realize a 77% annualized dividend yield in exchange for agreeing to sell at a 14% premium to the current price.
Polypore Weakness Signals Opportunity
Polypore International Inc. (PPO), a global high technology filtration company that develops microporous membranes used in the filtration process, may be a great buy after its recent weakness. Earlier this week, Needham suggested that the company’s fundamentals are solid and reiterated its strong buy rating on the stock despite the recent weakness.
Investors looking for a nice dividend yield to boost their confidence in the stock can also considered a covered call strategy. Currently, the 60 Nov ’11 calls trade with a premium of around 3.30 per contract. By selling one contract per 100 shares owned, investors could realize a 75% annualized dividend yield in exchange for agreeing to sell at a 15% premium to the current market price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.