Once again taking advantage of increased market turbulence and volatility, I initiated two more short put option positions this past week. And, as is also usually the case, both are positions in high-quality companies with long histories of dividend growth.
Diebold [[DBD]] – On 11/2/09 I sold some May 25-strike put options against DBD as it sold off on market weakness:
Diebold produces automatic teller machines and other self-service transaction systems, as well as electronic and physical security systems, including vaults and security systems. Currently trading at about $27 and yielding 3.8%, its shares have fallen sharply in recent days after the company reported disappointing third-quarter earnings and cut its 2009 forecast.
Technically, despite its recent price decline, DBD appears to remain in an intermediate-term uptrend, although it’s getting close to levels (i.e., $25-$26) that if broken would suggest a more neutral to even negative outlook. From a valuation standpoint, current fair value estimates for DBD range from just below $20 up to about $50, with the average being about $34.
Diebold has a distinguished dividend history, having raised its dividend for 55 consecutive years, and has earned a five-star rating at DividendInvestor.com. While its stock may languish at lower levels for a while as its customers in the financial services industry take time to recover from the recent crisis, it appears to be a reasonable value here, and would be even more so at the $24 level (and corresponding 4%+ dividend yield) that would be my cost basis if I’m ultimately put the shares.
Sysco [[SYY]] – On 11/3/09 I sold some May 22.5-strike put options against SYY as it sold off on market weakness:
Trading at about $27 and yielding over 3.5% the shares of this food service products distributor are currently in a strong intermediate-term uptrend – a picture that will likely remain intact unless the stock falls below its $24-$25 support level.
Like DBD (see above), SYY has earned a five-star rating at DividendInvestor.com, having increased its dividend for 32 consecutive years. Valuation wise, here in the upper $20s, SYY appears to be trading just about at the average of its calculated fair value estimates, which range from the low $20s to as high as about $40.
I’d been trying to sell 17.5- and 20-strike puts against SYY since May, when my last short put position against it expired out of the money, but none of my limit orders ever triggered. Moving up to a higher strike price seems to have done the trick, something I’m comfortable with here given SYY’s price action and what would be a very reasonable valuation down at just under $22 (which would be my cost basis if ultimately put the stock).