DGI Adventure 10-14-16 Sold Cash Secured Put + Investment Thesis (Revisited) – Whole Foods Market, Inc. (WFM) – $26.00 strike – Nov 04 Expiration

This trade was executed yesterday 10/13/16.

I first did went through my investment thesis process for Whole Foods back in October of 2015 when my wife was considering shares for her Roth.

Since it’s been a year, it’s probably worth revisiting the quantitative case again. I don’t think the qualitative stuff has changed too much though.

I have updated the portfolio and income tracker back at the mothership to reflect this position.

Dividend Cycle

The last put option that I sold in WFM expired worthless the day after the ex-div date which was 09/29/16. That leads me to believe that the next ex-div won’t be till the end of the year. The previous history leads me to believe that the company will announce a dividend increase next quarter. You see, the company is a dividend challenger with 6 years of consecutive increases under its belt. It has made a habit in those 6 years, to raise the distribution with the first quarter’s payout, which is the next one coming up.

The premium is almost three times as much as the dividend payout, and the contract expires well before the ex-dividend date.

Investment

The QC (Quantitative Case)

Note: A little bit of degradation compared to the QC from last year. Profitability metrics have slipped a little bit, and the debt has really creeped substantially.

They can afford it though.

SPL (Strike Price Logic)

Now that the forward annual dividend is up to $0.54/share, the market price has pulled the yield to within spitting distance of 2%. This strike price would actually be a little over that. Who knows what they’ll raise it to in December, but it would be great to have a cost basis of $26/share.

QWaF (Qualitative Warm and Fuzzy)

See original investment thesis from October 26th 2015.

CPR (Cold and Prickly Risks)

See original investment thesis from October 26th 2015.

Leave a Reply