DGI Adventure 07-03-16 Sold Cash Secured Put + Investment Thesis (revisited) – Fastenal Company (FAST) – $41.00 strike – Aug 19 Expiration

This trade was actually executed on Friday 06/24/16. I didn’t get a chance to write about it until today.

Please visit the core philosophies article on my investment thesis process for a deeper explanation of the components of this article.

I already did an investment thesis on Fastenal back in October when I bought shares in my taxable account. I’ll revisit the quantitative case again, but the QWaF and CPR are not really changed.

Dividend Cycle

FAST is likely to go ex-dividend sometime in late July. The current payout is $0.30/share, where it’s been since the most recent raise in the first quarter of this year. FAST is a dividend contender, having raised its annual dividends for 17 consecutive years. This trade will still be in force during the next ex-dividend date. Unless I am assigned early (unlikely) I will miss out on that dividend. The premium is more than twice the quarterly distribution, so I’m okay with that.

Investment

The QC (Quantitative Case)

Hmmmm…the dividend safety has deteriorated a little since I last looked at FAST. That is concerning. I will have to keep an eye on this. Since they’ve raised the dividend, my DDM valuation has increased to $48 using the same DGR assumption. With the deterioration of the safety metrics, I’m not so sure about that 7.5% growth assumption any more. They’ll need to spur some serious cash flow growth here to stay on the right track.

SPL (Strike Price Logic)

When the market is in panic mode, you can get good downside protection AND good yield. Granted August is a little ways out, but not that far. $41 is above my current cost basis of ~$37, but it’s still below my previous fair value estimate of $44.80. As discussed above, I’m not so sure I trust that new fair value estimate of $48.

QWaF (Qualitative Warm and Fuzzy)

See previous investment thesis. Quantitative stuff may have changed a little, but not the qualitative stuff.

CPR (Cold and Prickly Risks)

See previous investment thesis. Quantitative stuff may have changed a little, but not the qualitative stuff.

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