Wednesday, February 6, 2019

Western Digital is a laggard but call activity looks good

Western Digital is a chip maker that has suffered.  WDC sports a really good yield above 4%.  Balance sheet as measured by D/E (debt to equity) ratio is good; D/E = .97.  P/E is just a bit high at 17.4.

The call illustrated below captures the next expected dividend with the ex-div date about March 28, 2019.  I picked an expiration date of April 18, 2019 and a strike price that I think WDC will not meet.
Although WDC could easily be called away as the 52 week high is over $100.   If it is called away, I will book my profit with pleasure.

With this trade I add a solid income stock with call potential.  Beta is 1.17 (source Nasdaq) which provides for call selling opportunities.  

The negative feature is no dividend growth.  WDC has held the dividend steady for four years.  However, prior to 2015, dividends were increased regularly.  Revenue growth is quite good at 14.8% and payout ratio of dividends to free cash flow is only 20%.  I think it is a safe investment for conservative income investors.

M* MoneyMadam

Disclosure:  Long WDC with calls