As an index investor, dividend stocks are something I only look at from far. Once in a while, my eye does fall on a stock that draws my interest. This week, it happened again. And now I decided to act upon the discovery.
The French company ENGIE is a stock that I look for nostalgic reasons. This utility company is the first individual stock ever that I bought. I like this utility company due to its global diversified set of operations. As energy in the form of electricity and gas is not going away over the next few years, I am very optimistic about this company.
A small side note is on its place: I am not a an experienced stock analyst or DGI expert. In fact, I am more a contrarian…! So, do some research yourself if you want to know this company better.
The reasons for me to like the company are simple: the dividend policy a payout ratio of 65% – 75% of Net recurring income, with a minimum of €1 per share payable in cash for 2015 and 2016. At the current price of 13,94 this is 7,71pct gross or in the Belgian case 3,61 net yield (and 4,39pct if I file a lot of paperwork and be patient for a long time). This beats by far my savings account! For 2017 and 2018 the commitment is only 0,7€/share.
Other metrics are far less appealing: declining revenue, decreasing dividend , a loss in 2015. This does not look good. With metrics like this, most DGI investors would most likely already stop their analysis.
On the other hand, the number of estimates downgrades for the price went to 0. A lot of analysts are starting to become positive. The stock also looks to be bottoming out again, maybe ready for a rebound? There is a restructuring plan in place and thoughts of spinning off some parts of the company.
All of the above makes this stock an interesting candidate for my play money portfolio. Remember, this is not my core portfolio, it is the part of my portfolio where I take more risk, directional bets and make contrarian moves.
What move did I make?
Rather than buying the stock directly, I wrote an at-the-money put, with a a strike of 14. I got paid 35 cents for this. This means that my actual buy price will be 13,65. This is below the close price on Friday: 13,95. I will thus end up buying the stock at a lower price and have a higher yield: 3,69pct net.
ENGI trades above 14 on April 15: I get to keep the premium and make already 70 pct of the yearly dividend.
ENGI trades below 14 on April 15: I will get assigned and need to buy the stock at 13,65. I am very ok with this price.
With options, there is also another way out: I can buy more time and roll the position to another date and maybe even another strike. This is an action I will consider early April or in the assignment week.
Only time will tell…