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  • High Dividend Stocks & The Price Of Eggs 1 comment
    Jun 26, 2009 11:55 AM | about stocks: CALM
    You may have often heard the advice, "Invest only in what you understand". Cal-Maine Foods, CALM,  just happens to be one of those easy-to-understand companies - they're the largest seller of eggs in the US, with a 15%+ share of the market. 
     
    Eggs are a basic food staple, something that consumers aren't going to do without, even in a recession. In fact, during a recession, consumers tend to eat at home more often, which plays to Cal-Maine's strength as a major distributor to supermarket chains.
     
    Cal-Maine, which opened today at $25.38, has many solid fundamentals and attractive features for income investors, including:
     
    1. High Dividend Yield - 6.8 % ($1.72/share, based on the most recent payout of $.43/share.  Management hasn't announced forward dividends yet, so this could change).
     
    2. Moderate Dividend Payout Ratio - 41 % Based upon the average 2009 EPS estimate of $4.16. (The S&P's average payout ratio is approximately 59 %). 
    3. More than 49 % below its 52-Week High
    4. Current Ratio: 2.15
    5. Long Term Debt to Equity: .37
     
    CALM's Management metrics
    are also impressive:
     
     
    CALM
    S&P 500
    19.43%
    7.32%
    ROE
    38.81%
    17.98%
    ROI
    25.08%
    10.37%
     
     
     CALM Valuation vs. S&P 500:
     
    CALM
    S&P 500
    P/E
    5.45
    16.88
    PRICE/BOOK
    1.77
    3.31
    PRICE/CASH FLOW/SHARE
    4.48
    11.37
     
     
    CALM compares favorably within its peer group, Packaged Foods: Poultry & Meats, sporting the 2nd highest dividend yield, and the 2nd lowest beta, (.40).
     
    One way you could goose this golden egg’s high dividend yield even further would be to sell covered calls against it.
     
    The February $25.00 calls, (KQMBE), are currently getting a $3.60 bid, which equals a 21.75% annualized static yield.
     
     
    Add in 3 quarters’ dividends of $.43/share/quarter and your income yields would be as follows:
    PRICE/
    SHARE
    DIV.S/SHARE PRIOR TO EXPIRATION
    ANNUAL-IZED DIV.YIELD
    CALL PRICE
    CALL ANN'D YIELD
    (STATIC)
    TOTAL STATIC YIELD
    POTENTIAL TOTAL ASSIGNED YIELD ANNUALIZED
     
    $25.38
    $1.29
    6.8%
    $3.60
    21.75%
    28.55%
    27.25%
     
    The Static Breakeven on this 8-month trade: $20.49 (19.3% downside protection.  $25.38 - $1.29 Dividends - $3.60 call premium)
    Static/Unassigned Profit: $4.89/share ($1.29 in dividends + $3.60 call premium)
    If the shares rise to or past $28.60, (the $25 strike price plus the $3.60 call premium), the assigned profit would be less than the static profit, since you'd have to sell your shares at the $25.00 strike price, which is $.38/share less than the current $25.38 share price.
    Assigned Profit: $4.51/share, (27.2 % annualized yield)
     
    By adding that juicy covered call yield to Cal-Maine's high dividend payout, you can almost quadruple your yield on this solid company, and give yourself over 19% in downside protection.  
    This is one high dividend stock that has a lot to do with the price of eggs.  Kinda' makes you want to go cook an omelet...
     
    Diclosure: This author is long CALM.
    Themes: Cal-Maine Foods, Consumer Goods, Packaged Foods, High Dividend Stocks, Covered Calls, Income Investing, Dividends, Options, High Dividend Yields Stocks: CALM
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This post has 1 comment:

  •  
    Under certain conditions of extreme scarcity during World War II (in Europe, not the U.S.), the price of a chicken was something like the equivalent of 15 eggs. Or put another way, an egg represented a 6.7% "yield" (1/15th). People that were too close to the war had very short time horizons.
    2009 Jun 26 03:11 PM Reply
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