|A Gentex auto-dimming car mirror. (Photo credit: Wikipedia)|
Actual execution of this trade was $16.35 basis, selling the September $17.50 strike for a call premium of $.35.
Gentex, symbol GNTX, meets almost all the criteria I need to add it to the 2016 portfolio. Sadly, I cannot add to the model portfolio because the dividend yield is less than the 2.75% I require, but I am going to add to my personal portfolio and here is why.
Gentex, GNTX, is a solid stock running under the radar of most investors. In this post I present GNTX’s dividend yield and growth, earnings per share and revenue growth, debt to equity ratio as well as covered call options.
This table presents GNTX’s 2016 criteria:
Gentex has paid dividends since 2003. The stock split 2:1 twice since it started paying dividends; 2005 and 2015. Adjusted for splits, dividend increases have averaged 10.45% per year between 2010 and 2015. The most recent declared dividend of $.09 for shareholders as of July 20, 2016 is a yield of 2.17% (closing price on 5/21/2016 $16.57.)
EARNINGS AND REVENUE
As you know, I always require earnings per share to be greater than dividends paid out. GNTX meets that criteria. During the last four quarters, EPS were $1.10 and dividends were $.34. Revenues drive earnings and earnings drive dividends so revenues are important.
Between 2012 and 2015 revenue growth has averaged 13.47% per year. In 2012 revenues were $1,099 and in 2015 $1,543. The revenue growth is solid.
DEBT to EQUITY RATIO
There are many ways to measure a company’s financial strength. I use D/E (debt to equity ratio.) I expect no more than a D/E ratio of 1 or equal to industry standards. Anything more than 1 is troubling. GNTX sports a D/E ratio of .1194. This low ratio means GNTX carries very little debt.
COVERED CALL OPTIONS
With the meager yield of 2.17%, I need to boost my current income from this investment. I think it will continue to grow and we all know how hard it is to find a stock with solid revenue growth in this market. If GNTX continues to grow, it is highly likely that covered call options will be available.
A few September $17.50 calls traded today with a premium of about $.35. The September call is a little further out than I like to go, therefore, I will monitor the situation and when I find the right call, and it may be tomorrow, I will sell a call on half my position. The table below presents the potential gain from selling this call.
Gentex has a market capitalization of $4.791 billion which is not that large. Often times companies of this size are dependent on only a few big suppliers. Lose one contract and you can have trouble. Be forewarned that a smaller cap stock, even one with the solid history of GNTX can be vulnerable to a customer’s ups and downs.
Consider Gentex, GNTX, for the income producing portion of your portfolio.
Disclosure: Expect to add GNTX and expect to sell calls