Just when we get ahead in the 2015 Portfolio, we get negative  news like this.  M*

Potash declares $0.10 dividend http://seekingalpha.com/currents/post/3207804?source=ansh-d $POT

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POT, POTASH

Help for this beleaguered Dividend Machine I hope. M*

CNBC's Faber: Potential Potash-Agrium deal weeks away, talks in early stage http://seekingalpha.com/currents/post/3206384?source=ansh-d $POT, $AGU, $MOO, $PAGG, $VEGI, $SOIL

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POT Income on weakness

Hard to believe I am doing this again with POT, Potash.   The calls are compelling when you add in the dividend.   Selling a January 15, 2016 call.  This call is out far enough that I should receive the dividend and the call premium.

Call premium is $.38 for a $23 strike price.   Combine it all together and if you stock is taken, your gain is over 17%.   If your shares are not taken and POT survives, your income over these next 58 days is 3.5%.  

See the table below.




TheMoneyMadam

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Why POT and VZ are not Dividend Machines

I am not enamored with the market and I cannot put my finger on it.   Alfred Ferol tells me it is time for a pause.   Lots of things are influencing the market including people’s moods.  You don’t have to invest every day, he points out.

Are we scared of a 25 basis point increase in rates?  Maybe it is the unrest in the Middle East that is to blame for the malaise and the fear.  Or perhaps the strong dollar with its negative impact on earnings has the market feeling gloomy.

In that frame of mind, I looked at ten stocks that I might consider as a 2015 Dividend Machine stock.  Several calls were taken last week and I have money to invest.  I looked at these ten stocks not just as potential Dividend Machines but also as possible investments that might not quite make the Dividend Machine grade but are worthy of investment.  I decided to profile two stocks with the view of “why I don’t want to invest in either one.”

Dividend Machine Fundamentals of VZ and POT

Of these ten stocks, the two stocks that even come close enough to consider my investment are Potash symbol POT and Verizon symbol VZ.

Both of these stocks make more money in EPS than they pay out in dividends and their yields are around 4.5%.   Let’s look at these stocks further.

Verizon has a solid 5 year dividend history.  They have increased the dividend an average of 3.16% per year.   This is not quite enough to make VZ a Dividend Machine as we require at least a 4% average increase per year over the past five years.

Potash has a really robust dividend increase history.   If you look at the past three years, the dividend has increased from $.14 to $.38 per quarter.  That is an average annual increase of 56%.   But, POT has a history of cutting the dividend.   They clearly have tried to maintain a payout during difficult times but they will reduce the dividend if needed to maintain the integrity of their balance sheet.

POT has a D/E ratio of only .37.   VZ has a D/E ratio of 8.99. 

The Tables below show the Dividend Machine fundamentals of these two stocks.

My Take:

I value balance sheet integrity a great deal and feel that I would rather pick a stock with a D/E ratio of less than one rather a stock with a D/E as high as VZ’s.  However, I am worried about these value stocks like POT that deliver a nice dividend now but if things get worse, they may not deliver the same income as I expect.

I will pass on both of these stocks for now.

TheMoneyMadam 

Disclosure:  Long POT with Calls

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Dividends & Income POT, Potash the next 2014 Dividend Machine

Diversification comes in many flavors.   Some advisers concentrate on percent of bonds versus percent of stocks.   Other advisers suggest some growth and some value.  Then there are advisers who want you to have some small cap stocks and some large cap stocks to achieve diversification.   Another diversification goal is to have some global or international stocks as well as some domestic stocks.

The Dividend Machine I am profiling today is a Canadian Company that trades on both the Toronto stock exchange as well as on the U.S. stock exchange. 

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Dividends & Income - Potash (POT)

October 16, 2013

My favorite covered call trade for today.

Potash (POT) which I profiled earlier this year is not a dividend machine but it does have potential.   Here is the covered call trade I made today.



The Money Madam

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Dividends & Income from Potash POT

The world’s population continues to grow as does the need to feed people.   This fact is real no matter what the Federal Reserve’s policy on borrowing is or how dysfunctional our Congress is.  Economies can grow and contract, but the need to feed an ever growing population is permanent.   

Growing food requires fertilizer.

Con Agra (CAG) and DuPont (DD) were part of my portfolio until recently.   CAG’s stock price increased and forced me to set a stop.   When CAG weakened, the stop was hit.  DuPont (DD) and Dow Chemical (DOW) did not perform quite as poorly.   I lost my position in each of these two companies when I sold calls at strike prices that provided significant profit.  

I want investments in this space.  I think opportunities exist that will duplicate my experience with CAG, DD and DOW and provide income with capital gains.

Use Market Volatility to Find Bargains.

Potash (POT) is my target.   Potash’s stock price took a terrible plunge the end of July from $44 per share to $28 per share.  The plunge was related to a quarter of weak earnings.   All of the stocks in this space tend to be volatile, but POT is more volatile because its mines are in unstable places and can be affected by local unrest.    Lately, POT has scratched its way back up to the low $30’s.   I think this is a bargain price for yield hungry investors.

Take Profit and Reinvest for More Income.

Like all companies in this space, POT has been a regular dividend producer.   Although POT is not technically a Dividend Machine because it has not consistently raised the dividend every four quarters, the ten year dividend history is encouraging.    

If you owned POT in 2003 you would have received $.25 per share in quarterly dividends and today you get $.35 per share; a forty percent increase in income over ten years.

As an income investor I will move my proceeds from CAG, DD and DOW which provided just above three percent to POT which yields 4.34%.    Moreover, POT like these other companies, has enough volatility to provide covered call income potential.

Dividend Fundamentals.

This table presents the key data I use to determine if I want to buy a stock.   

Notice that POT pays a 4.34% dividend yield with a very low debt to equity ratio of .35.    Even during the rough years of 2008 and 2009, POT continued to pay a dividend.

This investment is not for the investor who cannot tolerate volatility.   However, the patient income investor, I think, will benefit from owning POT.   Do your own research; and there is plenty of opinion about this stock; then decide if POT’s enticing yield of 4.34% fits into the income producing portion of your portfolio.

The Money Madam

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