DGI Adventure 11-22-16 Sold Cash Secured Put + Investment Thesis (Revisited) – Wal-Mart Stores Inc. (WMT) – $67.50 strike – Dec16 Expiration

This trade was actually executed on Thursday 11/17/16. 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 first opened a position in Wal-Mart over a year ago, and I went through the thesis process then. After a full year, I think it’s worth another look, at least at the quantitative case.

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

Dividend Cycle

WMT goes ex-dividend on 12/7/16, which is a week and a half before this contract will expire.

Wal-Mart is a dividend champion boasting 43 consecutive years of increases, and I see no reason to expect that streak to be in jeopardy.

Because of the ex-div timing, I am highly unlikely to be eligible to collect next quarter’s dividend, but the premium from this trade exceeds the quarterly distribution by 76%, so I’ll survive.


The QC (Quantitative Case)

SPL (Strike Price Logic)

I’d rather have made this trade with a strike price about $1 lower, but for the monthly expiration the strikes were $2.50 apart. The $65 strike didn’t have adequate premium for my taste so I went for $67.50.

Compared to where things were a year ago, the company has really improved its cash flow situation, so I think things are probably looking up in terms of the dividend.

Last year’s dividend raise (2%) was a token increase. I’m expecting something a little more substantive this time. Assuming that plays out as I expect, the new implied DGR of my cost basis should be well within my target margin of safety range.

QWaF (Qualitative Warm and Fuzzy)

It’s freakin’ Wal-Mart! They’re the world’s largest retailer.

Also if Trump wrecks the economy, discount retailers should outperform during recessions right?

CPR (Cold and Prickly Risks)

Amazon! Amazon! Amazon!

Wal-Mart is investing in and building its online presence, but there are plenty of pundits who think it’s too little too late and that Bezos et. al are going to eat every retailer’s lunch from now until eternity.

I’m willing to give them a little more credit…and I really like the fact that over 50% of shares are owned by insiders.

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