Tuesday, May 31, 2016

Why add Gentex GNTX in 2016

A Gentex auto-dimming car mirror.
A Gentex auto-dimming car mirror. (Photo credit: Wikipedia)
Update 6/2/2016  Please note that the ex-dividend date for GNTX is July 5, 2016 not July 20, 2016.  July 20 is the pay day.

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:



DIVIDEND STORY

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.

M* MoneyMadam

Disclosure:  Expect to add GNTX and expect to sell calls