This trade was actually executed on Friday 06/24/16. I didn’t get a chance to write about it until today.
BEN went ex-dividend on June 28th. The payout was $0.18/share. It will likely stay at that rate for one more quarter this year. They’re due to increase next year since the company is a dividend champion, sporting 36 consecutive years of increases. The premium received exceeds the dividend payout that gave up by 33%.
The QC (Quantitative Case)
*It’s worth noting that all these cushion metrics are calculated using capex only as opposed to all “cash used for investing activities,” which is what I usually use in the cushion calculations. BEN typically MAKES money on this part of the cash flow statement, so these numbers would be even crazier if I used that positive value. The
SPL (Strike Price Logic)
$30 is a nice round number. It also represents a 5 year low for the share price. That’s like…I could either invent a time machine and go back to 2011 and buy BEN when the dividend was half as much as it is now, or I could do this trade. Of course buying in 2011 gives you all those dividends in the interim, but I can make up a lot of ground with options!
QWaF (Qualitative Warm and Fuzzy)
Look, I can’t really tell the difference between asset managers. I think they’re all crooks. BEN is one of the biggest and has been around a really long time. The dividend legacy obviously points to a management who is committed to returning value to themselves…ahem…err…shareholders (37.7% of shares are held by insiders). The fact that I think they’re crooks is the primary reason I’m interested in owning shares. I’ve long said, I don’t care if the market is rigged, I just want a part of the action.
CPR (Cold and Prickly Risks)
I am not the only person who thinks that asset managers are crooks. Low cost, passive Index investing is here to stay, and will likely continue to grow. It is going to eat traditional asset manager’s lunch if they don’t adapt. Not all crooks are good at adapting, but the Wall Street variety are pretty savvy. They’ll be fine. Plus you can’t fix stupid…and there are plenty of stupid people out there who aren’t going to passively index in low cost funds…