This trade was actually executed on Thursday 09/01/16. I didn’t get a chance to write about it until today.
I sold a put on BEN back on Brexit day, and that write-up followed the core philosophies article on my investment thesis process which is where you can find a deeper explanation of the components of this article. This one will be a little more brief; I’m simply documenting the trade. My reasoning for wanting to invest in the stock hasn’t changed in two months.
My guess is that BEN will go ex-div sometime the last week of September, when the distribution should be $0.18/share. I don’t expect an increase until the next distribution, but that increase does seem highly likely, since BEN is a dividend champion with 36 years of consecutive increases.
If assigned, I would expect to only need to hold the shares a week or two before the ex-div date, which is really the ideal scenario for me. The premium received is nearly double the dividend distribution.
SPL (Strike Price Logic)
My self-imposed rules limit me to assuming an 8% DGR, so “fair value” from a DDM valuation with a 10% discount rate has to have a minimum of a 2% yield. With this limitation, at the current distribution, BEN’s maximum “fair value” is $36/share. So this strike is still in that range (although barely). Plus I got a great annualized return on the premium, but that’s mainly because the strike is so close to the money.
As I mentioned, I think that management will raise the dividend at the end of the year, and by many other 5 year average valuation metrics, BEN is really on sale at $35.