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
