In 2016 I am looking for a solid stock, one that could
withstand a major market disruption.
More than just safety, I need yield and yield growth. To boost yield I need a stock highly
likely to provide covered call income.
Simple stuff right?
This post presents the Dividend stock fundamentals of my
most recent 2016 portfolio addition. I
already own this stock and I am up about 10% since July 2015 not including dividends. With dividends added in I am up 12.3%. I have not sold any calls on PAYX.
I added PAYX to the 2015 Dividend Machine Model Portfolio in
July 2015. http://www.themoneymadam.com/2015/07/paychex-symbol-payx-next-2015-dividend.html That portfolio is long only. Whereas in 2016 I will record actual sales as
a result of calls being assigned but otherwise, the 2016 portfolio is also long
only.
Paychex 2016 Fundamentals
In the table below you will see the data I used to evaluate Paychex. Earnings are greater than dividends paid $2.04
EPS and $1.68 annual dividend payout.
Dividend yield is 3.2% which is very nice for income investors and
dividend growth over the past five years has averaged more than 6% per year. Even more good news for income investors. Debt to equity ratio (D/E) is 0. Paychex has virtually no debt. So far we have a good dividend stock that
would seem to be a safe bet.
Notice a couple of things from that table. First look at revenue growth. I am looking for, and believe me
it is hard to find, a stock with revenue growth at least 4% year
over year (y/y) for the past 3 years.
PAYX has double their revenue growth 8.70%. Next look at the failure of PAYX to solicit
covered calls. Technically this is a
failure but like, WSO, I will wait for some volatility to occur and a covered
call to come our way.
Open interest and put/call ratios are a couple of ways to
determine if you think a stock will have a future with covered calls available.
Here is a link to a site that writes
about call/put activity. https://www.marketnewsvideo.com/article/201510/first-week-of-june-2016-options-trading-for-pay This article written in October 2015 points
toward the call opportunities of PAYX. I
am hoping this opportunity will come up again soon. I see a September $55 call for $.90 but the call expiration date is too far out and the strike price is too low.
In the interim, we have a stock paying not just
income, but income that is highly likely to continue to grow while we are paid
for yield boosting covered calls and future capital gains.
While I do not technically use other factors to make my
decisions to add stocks to my model portfolios, I do like the business. As all employers know, managing your payroll
and making sure you do not run afoul of a myriad of regulatory requirements is
a daunting task. The need for a professional
service to manage this part of running a business will grow. Moreover, Paychex is not a one trick pony. They also offer retirement and insurance
services.
Consider Paychex, PAYX, for the income producing portion of
your stock portfolio.
M* TheMoneyMadam
Disclosure: Long PAYX
Disclosure: Long PAYX
