Friday, October 20, 2017

Doubling Down on HCI

I added HCI to the 2017 portfolio on March 31.  I was a little early.  HCI stock traded at $44.80 when I added it.   Click here to read that post.  

It is rare for me to double down on a stock in my published portfolios.   Although I must admit I do it all the time in my personal/family accounts.

I did double down once before in the 2015 portfolio and the stock was Caterpillar.   My first CAT buy was $79.94 and I added again at $83.30.   It was a very painful period because CAT dug quite a hole in this portfolio trading as low as $63.65 in September 2015 and stayed low for quite a while.  Now CAT is building back value trading today at $130.72.

2015 PORTFOLIO - Doubled Down on CAT

I don't expect that kind of slump or meteoric rise in the stock price of HCI.  I am adding it to the portfolio because it has a solid dividend at 3.63%, and all other fundamentals make it Dividend Machine.  

HCI Insurance;

HCI World Head Quarters 

HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities, including homeowners insurance, reinsurance, real estate and information technology. The company’s largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., is a leading provider of property and casualty insurance in the state of Florida. (Source HCI website.)

While it is hard to find value in this market, HCI, in my opinion is a bargain.  The stock price was negatively affected by expectations of being hit by the costs of the many insurable disasters that have impacted us in 2017.   In fact, the price has corrected by 12%.  HCI is trading at $39.34 today.


The table below presents HCI stock fundamentals.   It meets all my criteria:  (1) dividend greater than 2.75 %, (2) earnings per share greater than dividend, (3) dividend increases averaging more than 4% per year and (4) debt to equity ratio less than 1 or within industry standard.

HCI Covered Call Opportunity

Somebody out there agrees with me that there is future opportunity in this stock.  HCI has a January $45 call trading around $1.00.   Going out to January provides for receiving the dividend which is expected in November.  

If my shares are called away, my return on this lot is over 17%.  If I end up holding this lot, I add 2.54% yield to my 3.63% dividend yield.   All of this is good news for an income investor.

See the table below HCI Covered Call:

In summary, I am adding another lot of HCI to the 2017 portfolio and to my own holdings while simultaneously selling calls on part of that position.  I am buying for the dividend, the dividend growth, and the upside potential.  Moreover, I am buying because I think HCI represents value.   P/E (price earnings ratio) is 10.78.   Very hard to find a 3.63% dividend yielder with perceived growth potential at such a reasonable price.

M* MoneyMadam
Disclosure:  Long HCI with Calls