Wednesday, January 11, 2012

Dividend Machine Hasbro, HAS

Hamtaro plush from Hasbro
Hamtaro plush from Hasbro (Photo credit: Wikipedia)

Dividend Machine week of January 09, 2012

 The dividend income idea is becoming a crowded trade.   So many companies that I have liked as Dividend Machines are just too expensive because others are buying them.   Therefore, I have to look around for something not so obvious.  

My Dividend Machine for the second week of 2012 is focused on a company that others ignore.    How about toys?  Hasbro (HAS) has a fun and compelling story with all the toys, games, and more mature entertainment.   Operating since 1972, this company was a growth story and then it started sharing income with its shareholders.

Hasbro (HAS) closed today, Wednesday, January 11, 2012, at $33.25.  HAS provides a $.30 quarterly dividend for an annualized yield of 3.6%.  Earnings per share for the previous four quarters were $2.76.  Dividends have increased every year for 10years.  Debt to Equity is 1.03.  HAS qualifies as a Dividend Machine.

Additional income is available through covered calls.  Companies like HAS that go up and down with the Christmas cycle have opportunities to sell covered calls.   Today, an April $37.50 call paid $.40.   Income from this call provides a yield of 1.2 percent.  If the call buyer does buy your stock for $37.50, your gain (not including dividends) would be 13.98 percent.   These are the kinds of companies that active income investors are trying to find.

Lets assume you end up keeping HAS, in that situation your 3.6 per cent annualized yield increases to 4.8 percent by adding in the additional income from just this one call.    You know that we really try to buy companies that we feel we could own for a long time.   

HAS is a good lesson in the financial power of compounding through dividend reinvestment.  If you invested $5,000 10 years ago today (297 shares) and reinvested your dividends, your investment would have increased 151.29 percent to $12,538.   By reinvesting your share balance increased to 380 shares.   If you stopped reinvesting today and turned on the income to spend, your current dividend income of $1.20 per share per year would be $456 or a 9.12 per cent yield on your original investment.

Use HAS as an example of how to employ a Dividend Machine as one of your core income holdings.

Very Truly Yours,

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