Wednesday, May 22, 2013

DIVIDEND Seven percent yield AstraZenca AZN

Seven Percent Dividend Yield, AZN


            This year, 2013, I changed my technique for investing in dividend stocks that I call dividend machines.  I still use the four strict criteria as I did in 2011 and 2012, but I added a fifth dimension; I have to like the stock for some reason.   

            AstraZeneca, symbol AZN, is a stock I want because the yield is compelling.  AZN’s dividend machine bonafides are presented in the table below.  Then I discuss the “externalities” (that is a term young people like to use) that add to AZN’s appeal and those externalities that could make you think twice.   Only you can decide if AZN is a good stock to add to the income-producing portion of your portfolio.  Continue on and find out.


AstraZeneca, AZN dividend machine fundamentals:





DIVIDEND MACHINE
5/20/2013

AstraZeneca
AZN

Price when profiled
$52.64

Last 4 Qtrs Earnings
$4.51

Last 4 Qtrs Dividends
$3.80

Current Qtr Dividend
biannual pay

Annualized Div Yield
7.21%

No. Years Div Increase
since 2002

Debt/Equity ratio
0.46


AstraZeneca is a pharmaceutical company that pays a big dividend. 


Today, the cost of 100 shares of AZN is about $5,264.  Your 100 shares should provide about $380 of dividend income for a dividend yield of 7.21%; this yield far exceeds my minimal requirement of three percent.


As required to be included in my dividend machine list, AZN earns more per share than it pays in dividends.


EPS = $4.51
DIV = $3.80



Moreover, the dividend has increased over time.   For instance, if you owned AZN in 2002, your income on 100 shares would have been $77 per share and today it would be $380.  That is a fourfold increase of your income in just over 10 years.   Furthermore, their D/E (debt to equity ratio) of .46 is comforting.



AstraZeneca stock externalities:
Two “externalities” are relevant to the income investor.  


Will the fact that AZN is a foreign company negatively affect my investment?  For instance: the exchange rate could reduce the value of the money they pay in dividends and there could be foreign taxes and most important, accounting principles in other countries may not be as rigorous as they are in the U.S. and could AZN provide more income through covered call income.


AZN is a foreign company:


All of these should be considered.  I cannot opine on the exchange rate. AZN is a U.K. (United Kingdom) company but the dividend is not subject to withholding of foreign tax.  I cannot know if AZN’s accounting is any more or less legitimate than a U.S. based stock.  I can barely assume that in the USA.  However, history suggests this is a good company.


AZN has covered call income potential:


Is AZN a good company for call income?   Selling covered calls on stocks that pay dividends is a technique used by a lot of us income investors.   You have to be willing to sell the stock to the call buyer.   AZN has a call available where you can buy the stock today at $52.60, sell a call on that stock that will create immediate income; you receive the already declared dividend.   You are left with two good outcomes.   You sell your stock at a gain or you keep it for the dividend.



CALL OPTION
OCT AZN
Strike Price
$55.00
Cost Basis
$52.60
Call Premium
$0.70
Dividend*
$0.85


Gain in $ if assigned
$3.10
Call Yield
1.27%
Gain Yield
5.64%
Total Gain Yield
7.18%
*Expected to pay in Aug.

See the table at the right to learn how a selling a covered call today would affect your income.  You would receive both the dividend and the income from the covered call.   If the call buyer takes your stock, (they have the right but not the obligation) you get even more money from the capital gain.   If they do not take your stock, you retain a stock with a good dividend yield and you may be able to sell another covered call option in the future to make even more income.




Consider AZN for the income-producing portion of your portfolio.


TheMoneyMadam