Showing posts with label AVGO. Show all posts
Showing posts with label AVGO. Show all posts

Monday, January 13, 2020

Broadcom 12 % gain in 68 days

AVGO is Broadcom.  A frequent subject of my posts.  I don't like Broadcom's P/E ratio of 47.79 but I love their dividend yield of 4.3%  and their dividend increases.  Moreover, I love the calls associated with this chip maker.






Recent Dividend History:


EX/EFF DATE
CASH AMOUNT
DECLARATION DATE
RECORD DATE
12/20/2019
3.25
12/10/2019
12/23/2019
9/20/2019
2.65
9/11/2019
9/23/2019
6/21/2019
2.65
6/12/2019
6/24/2019
3/20/2019
2.65
3/13/2019
3/21/2019


I executed this call today.  We will have to see what happens.  At a minimum I receive the call income and if I get stuck with AVGO below my cost basis, I have a prodigious dividend growth stock.


M* MoneyMadam
Disclosure:  Long AVGO with calls
Read more »

Monday, October 21, 2019

NVDA and AVGO two calls with different purposes

We income investors are struggling to keep the cash flow up.   Quality dividend stocks are expensive and value stocks have value for reasons that make ordinary investors nervous.

  • No commissions help  you be more creative to work call option income
  • Know your income goals and be flexible with strike prices and expiration dates
  • Stick with stocks that have good fundamentals but don't eliminate a stock just because it is not perfect

We have to employ our cash to earn income and hold our noses when all the numbers are not perfect.

Below are two calls, both executed today.  They are designed to deliver income yet each is quite different from the other.  One call expires in 12 days and the other call in 89 days.

AVGO - Broadcom


I own Broadcom and sell calls as often as I can.  Broadcom is not perfect.  The D/E (debt to equity ratio) is higher than other chip stocks such as Intel.  AVGO D/E = 1.75 whereas INTC carries a D/E of only .38 and Skyworks (SWKS) has no debt.

Moreover, AVGO has earnings per share slightly less than the dividend payout.  However, their cash flow per share is more than double their dividend.  EPS = $7.42, Cash Flow = $23.39 with dividend payout of $ 10.60.

I am putting more money to work in Broadcom and selling a call designed to deliver at least 10% in capital gain should the call be assigned (the call buyer actually buys my shares at the strike price.)  Another goal for this call is to received call premium greater than the quarter dividend.  Finally, I picked a strike price that captures the dividend provided the call buyer does not take my shares before the ex-dividend date.

One of the biggest benefits from owning Broadcom is the prodigious dividend growth.  Over the past 3 years the quarterly dividend increased from $ .51 to $2.65.   When you realize that your expenses will double in 20 years and if you expect to live for 20 more years,  you need your income to grow.  Broadcom, in my opinion is worth the risk.

See the two tables below:


AVGO Dividend Machine Fundamentals










AVGO January Covered Call Option


















NVDA - Nvidia


I also own Nvidia and I added a little today.  With this stock I am looking to cash a nice check quickly.   I have less interest in holding NVDA for the long haul because the dividend is low and their dividend increases are adequate but nothing like AVGO.

I am risking new capital but for only 12 days.  I picked a call that will deliver more in the premium than I can get in dividends when holding the stock for an entire year.   The risk is that NVDA is very volatile (52 weeks price range is between $124.46 and $235.32;  this means NVDA could be worth less than what I paid in just 12 days.




I picked a strike price that is very close to my cost  basis.   I get a little gain and I get to pocket a juicy call premium.  And the entire commitment is only 12 days.

Risk is an interesting issue.  Look at NVDA's fundamentals below and you can see that the share price may be volatile and prone to headline news and trade tweets, but NVDA has a solid balance sheet and cash flow that far exceeds dividend paid out.  I think 12 days of risk is ok.  Let's see what happens.

See the two tables below:


NVDA Dividend Machine Fundamentals










NVDA November Covered Call Option



















It is not easy to work your portfolio in this stock market environment.  No commissions helps me be more creative.  Know what your goals are so when you do execute your trades, you are confident your income goals can be realized.   When your proceeds are not eroded by costs, you can do a little more active call selling.

M* MoneyMadam

Disclosure:  Long NVDA and AVGO with calls
Read more »

Monday, July 22, 2019

Broadcom Opportunity for income

I sure wish I owned a lot more Broadcom symbol AVGO.  While the stock price volatility can make you a bit squeamish, the dividend income and call option potential make this a stock to own in your income investing portfolio.   Want to retire with income that grows, then consider AVGO.

The knock on AVGO is the price earnings ratio which is in the high 30's.   My readers may find it odd that I own a stock with such a high P/E ratio but I am not so old that I do not need some growth in our portfolio.  When I can buy growth with a good dividend and call option potential, the fear that comes with volatility is easier to handle.  I get paid to wait.

AVGO Covered Call sold today


























The ex-dividend date has not yet been announced and the date could fall after the call expires.  Using their previous history of the ex-dividend date in Septembers, we anticipate the ex-dividend date to be September 18, 2019 (source dividend max.)


Another way to look at this call is if you initiated a position today.

























AVGO Dividend Machine Fundamentals

AVGO is a dividend machine as far as yield and dividend growth.  You will notice an increase in D/E (debt to equity ratio.)  This increase would be troublesome to me if it was used only to inflate price with stock buy backs.  I interpret the increase in debt as using cheap money to fund future growth and to fund future dividend increases.

For those who prefer free cash flow to determine safety of the dividend, you can find comfort in looking at the fundamental details in the table below.


Dividend increases are very important to investors who want to retire on income that grows.  Here is a chart of AVGO's dividend increases over time.








AVGO Volatility



For the ordinary investor, AVGO is a bit expensive.  Today it trades around $297.  You have to own at least 100 shares to sell one contract.  If you want to sell calls on only part of your position to mitigate the lost opportunity if your shares are called away by the call buyer, you need over $60,000 to invest to buy at least 200 shares.

I will not add here.  However, I will add should AVGO's stock price retreats to the $250 range.

AVGO one year price range



Another idea for income investors who want to retire with income that grows.  You get paid to wait through volatility with the dividend and you have opportunities for both growth and additional income.

M* MoneyMadam

Disclosure:  Long AVGO with calls




Read more »

Wednesday, December 19, 2018

Dividends are the only defense in this turbulent market

The fourth quarter of 2018 has been challenging for the best investors.  Just look at the dismal performance of hedge funds.   Even the simplest of investments like an S&P 500 ETF have performed poorly.  The pundits make it sound like Armageddon. 

What is an income investor to do.  Mostly nothing.  Just make sure you are in stocks that pay an ever increasing dividend.  I looked at stocks that announced a dividend raise in 2018.  I narrowed my search to include the following:

  • Stocks must have a dividend yield greater than the 10 yr. U.S Treasury
  • Dividend history has to show steady increases in the dividend greater than implied inflation 
  • Earnings per share need to be greater than dividend paid out
  • Revenue growth
  • Solid balance sheet
I found six stocks that basically meet these criteria.  I am sharing this search with you to illustrate that disciplined investing can create solid and increasing income streams no matter what the overall market is doing.

Looking at the first table below provides insight into these six stocks:  Amgen (AMGN), Pfizer (PFE), Cubesmart (CUBE), WEC energy (WEC), Broadcom (AVGO), and Eastman Chemical (EMN.)


Dividend Yield and Increases:


Why own a stock that pays you the equivalent of a safe security like a U.S. Treasury when you can easily buy the Treasury and know you will get back your money?   The reasons are pretty simple.

First when you buy a bond with a 10 year maturity rate, assuming you pay only par or less, you will receive back your principle when the bond matures.  However, the buying power of your principle will be significantly reduced due to inflation.

Next your income stays the same over the holding period of the bond.  During some periods of time the value of a 10 year Treasury can increase when interest rates go down.  Right now interest rates are really low and the chance for price appreciation of your bond is very limited.

If you can live on the income created by a portfolio of 10 year Treasuries, go for it.  The rest of us who need more have few choices.  Stocks that provide a steady stream of income are one of our limited options.

During the next 10 years, I can guarantee your basic expenses will double.  I write about this a lot.  I have been through nearly three, 20 year cycles and I measure my expenses.  In 10 years your expenses will increase by half.  To prepare for that, you must find investments and that also increase your income and dividend growth stocks are where I put about one half of my portfolio.

The hurdles I use for my own portfolio and I used to identify these December dividend increasers is:  yield greater than 3% and dividend growth greater than 3.8% which is implied inflation extrapolated from the past 20 years.

SYMBOL
12/19/2018
New Div
Old Div
% Div Increase
5 Yr. Div Inc Hx
Current Div Yld
AMGN
$183.08
$1.45
$1.32
9.85%
27.54%
2.88%







EMN
$70.38
$0.62
$0.56
10.71%
15.43%
3.18%







PFE
$41.74
$0.36
$0.34
5.88%
7.69%
3.26%







CUBE
$30.03
$0.32
$0.30
6.67%
29.23%
4.00%







AVGO
$243.20
$2.65
$1.75
51.43%
192.00%
2.88%







WEC
$70.91
$0.59
$0.55
6.79%
10.26%
3.12%







 

Earnings or Flow of Funds supportive of the Dividend:


During down times, you want a solid "moat."  If a stock pays out all its earnings, if earnings decline due to a global or local recession, a change in technology, a mistake with inventory, or running afoul of regulations, they might reduce or even cut your dividend.  A dividend cut is a reduction of your income.

When a stock reduces or cuts the dividend, you can be sure the money you invested will also be affected.  You can sell and move the investment into a better stock.  A better choice is to pick a stock with a good sized moat.

I like to see earnings per share (EPS) or flow of funds (FOF) in the case of REIT's, exceed the dividend significantly.   Anything under 60% to me is a decent moat.  You can see how these six stocks perform on the "moat" metric in the table that follows.  You are looking for a low number when looking for payout ratio.


SYMBOL
Fwr'd EPS
Dividend
Div Payout Ratio
AMGN
$12.22
$5.80
47%




EMN
$10.67
$2.48
23%




PFE
$3.96
$1.44
36%




CUBE
$1.65
$1.28
78%
* Uses FFO not EPS, Rev in (t)
AVGO
$27.80
$10.60
38%




WEC
$4.06
$2.36
58%


Revenue Growth:


The funnel that leads to our dividend income begins with revenue.   Without revenue a company will never create the cash needed to pay us income. Revenue growth is only one way to create the earnings needed to pay us income.  While revenue may not be the only way, you can feel more confident knowing the company is bringing in more and more money.

International companies have to deal with currency issues.   Global economies often times move in opposite direction to ours and that can cause revenue fluctuations.  While I can be flexible on this metric, I really like to see recent revenues growing.

Solid Balance Sheet:


A solid balance sheet is always important when you invest in stocks.  I use debt to equity D/E ratio as my first screen for balance sheet safety.

The balance sheet is a measure of how much debt the company carries.  A company can use debt wisely and not so wisely.   Lately, debt has been cheap leading to more borrowing by companies.  Some companies financed dividends by issuing debt.  Others used debt to buy back shares which increases the value of each share you own.

A couple of reasons to care about the balance sheet are: you want a company to pay a portion of their earnings to you in dividends and when interest payments decrease the amount available to pay, you suffer.


SYMBOL
Fwr'd EPS
P/E Ratio
Last 4 Qtrs Rev
Rev 5 yrs. Ago
5 Yr. Rev Growth
D/E ratio
AMGN
$12.22
14.98
$23,319
$18,086
5.79%
2.4







EMN
$10.67
6.60
$10,137
$9,254
1.91%
1.12







PFE
$3.96
10.54
$53,373
$51,917
0.56%
0.68







CUBE
$1.65
18.20
$587,544
$307,626
18.20%
0.97
* Uses FFO not EPS, Rev in (t)
AVGO
$27.80
8.75
$20,248
$4,269
74.86%
0.66







WEC
$4.06
17.46
$7,657
$4,411
14.72%
1.15







 

SUMMARY:



In each table presented above, I have highlighted in red those metrics of a stock that are marginal.  Amgen has a bit too much debt, Cube smart has both a high payout ratio but that is by design since it is a REIT and slow revenue growth.  Eastman doesn't increase revenue as much as we would like.

Interestingly, I own none of these stocks at this time.  I have owned Amgen and Pfizer in the past.  None of these stocks is compelling to me at this time but I will keep them in mind.

The point of this post was to illustrate that dividends are the salve to sooth the wounds of this wobbly market.  I looked only at December dividend increases.  I apply all these metrics to those stocks I do own.  These six stocks will stay on my radar for solid dividend income.  Should one or more of these stocks provide good covered call potential, that would increase my appetite.  AMGN and AVGO have very good calls.

Dividends, keep paying and increasing those dividends.

M* MoneyMadam



Read more »