Diving for Dividends and Options: 4 Small Caps Selling for Less Than Book Value

Includes: FLY, MCS, NKA, NM
by: Double Dividend Stocks

With over 69% of stocks above their 50-day moving averages, it's getting tougher to find bargains in this market, so we went looking for dividend paying stocks with Price/Book values under 1, and found four small caps, two of which are listed in our High Dividend Stocks By Sector Tables. There are also some pretty high options yields available on 3 of these stocks, (details below).

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All 4 firms have dividend yields above the current S&P average, have a conservative dividend payout ratio, and pay quarterly dividends.

FLY Leasing Limited (NYSE:FLY): Leases commercial aircraft, and changed its name from Babcock & Brown in 2007. FLY owns a fleet of 60 aircraft that it leases under multi-year operating leases to 34 airlines in 23 countries.

Nisak Gas Storage Partners (NYSE:NKA): Is the largest independent owner and operator of natural gas storage in North America, with strategically located assets in key natural gas producing and consuming regions.

The Marcus Corporation (NYSE:MCS): Has 2 divisions: Marcus Theatres is the sixth largest theatre circuit in the U.S., with locations in major markets in the Midwest. Marcus Hotels and Resorts, owns and manages 18 hotels, resorts and other properties in nine states.

Navios Maritime Holdings (NYSE:NM): Operates principally handymax and panamax bulk carriers, deploying owned, chartered and leased vessels. Also owns and operates the largest bulk terminal in Uruguay -- one of the most successful and prominent operations of its kind in South America.



There's a wide spread in the PEG values of these firms, which makes sense, given their 4 disparate industries. FLY's near-term EPS growth prospects are the lowest in the group, whereas MCS, NKA and NM sport low near-term PEG ratios.

If the economic recovery strengthens, MCS's theatres and resorts should benefit, whereas NM has a mix of short- and long-term chartered vessels, and has exposure to demand for basic materials, such iron ore, coal, grain, and fertilizer.

NKA's website states, “The ability to store and retrieve natural gas adds an important dimension to reliability of gas service. Access to storage allows individual gas buyers to acquire low-cost supplies on the spot market during off-peak periods, such as the summer months, and to store the gas in locations near to end-users during periods of peak demand.” 

Financial Metrics:


Although it has the highest debt load, FLY has an interest coverage ratio of 1.6, and NM's interest coverage is similar, at 1.8. NM's ROE of 7.54%, although the lowest in this group, is a lot better than its peer average of -6.71%, a result of the drubbing that the shipping industry has taken in recent years.

Covered Calls:

Three of these stocks have options available, which will allow you to greatly increase their dividend yields, via selling covered calls.

The upside: You get paid the call option premium now, (within 3 days of selling calls), you receive up to 5 times the dividend amount in call premiums, and if the option expires or is assigned in 2012, you won't have to pay taxes on the call options $ you received until 2013.

The downside: Your upside price gains are limited to the approx. threshold of the strike price + call option premium. For example, if you sell NKA $17.50 calls, you're obligated to sell your NKA shares at $17.50, even if it goes much higher than that. In theory, you're betting that it won't go past $18.35, the combination of the $17.50 strike and the $.65 you received for selling the call option. Also, if your shares are assigned/sold, this lowers your cost basis by the amount of call premium you received. If the call options expire worthless, the call premiums are taxed as a short term gain. You can find more details on these and other covered call trades in our Covered Calls Tables.


Cash Secured Puts: Selling cash secured put options is a more defensive way to profit from a stock that you'd like to own, but, whose price is currently too high for you to buy outright. By selling at a strike price near or below the current share price, ("At the money" or "out of the money"), you're often able to achieve an even lower break-even price. The same cash flow and tax advantages apply as with covered calls. You can find more details on these and other covered call trades in our Cash Secured Puts Tables.


Technical/Performance Data:


All 4 stocks are below their 50-day avgs., having trended lower over the last quarter. FLY declined the least, having benefited from increasing institutional buying. FLY and NM both have much more room for more institutional ownership.

Disclosure: I am long FLY.