Chip stock prices have improved lately and Wednesday some were really soaring based on Qualcomm news. I am not looking at Qualcomm, I am looking at Skyworks (NASDAQ:SWKS). Although it is an "analog" chip company, you can learn more about its innovation and plan for working on the upcoming 5G networks, here.
I follow and write about SWKS often because it pays a dividend, and has a P/E price earnings ratio of 14.5 which makes it look like a bargain. Qualcomm carries a P/E ratio of 36.56. And, as my readers know, I love a stock that also has call option potential. SWKS fits all the criteria.
Here are the fundamentals of SWKS. You can review the dividend stock selection criteria I have used for my portfolios here.
SWKS Covered Call:
I bought some more SWKS today but hedged my bet by selling a call with an expiration date that captures the dividend, I hope. SWKS has not released the next ex-dividend date. Last year in May the ex-dividend date was May 25 which is after the monthly call expiration date of May 17. However, in previous years the ex-dividend date in May has been earlier and you might consider a call with a May 17 expiration date rather than the May 31 expiration that I chose.
Be aware this stock can be volatile, but you do get paid to wait. It could exceed the strike price before the expected ex-dividend date making your shares vulnerable to be called away. You always get to keep your call premium. If you are called away and only get the capital gain (difference between your basis and the call strike price or $8.20) plus your premium of $1.05, your gain falls to 10.07% below the 10.49% you would get should the shares be called away.
Most likely, however, you will keep your shares with a basis of $91.80. Remember 90% of options expire without action. With the full year's dividend of $1.52 and this call premium of $1.05, your income from SWKS for the next year would be 2.799%, which is better than a short term treasury. Of course, with a short-term treasury note or bond, your principal is safe. Whereas, Skyworks' value could go down below your basis.
Since earnings and revenue growth are solid and Skyworks has no debt and Skyworks is in the thick of the next 5G generation, I feel this is a risk worth taking. Moreover, I may be able to sell more calls over the year boosting my income.
Disclosure: Long SWKS with calls.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.