Fastenal Company Dividend Capture (FAST)

Many high quality companies offer quarterly dividends to investors. Dividends may be a great source of income and with each dividend payment received; shareholders are able to lower their cost in an investment. Many investors will buy a company in part because of the dividend and the current yield. The most important basic requirement to receive a dividend from a company is to be a shareholder on the day of record for the dividend.
There are numerous dividend capturing techniques, and I have utilized just about every method known. One of the most important aspects to success is limiting the stocks to only the very best candidates. Using call options for hedging is one of my favorite and easy to understand methods of capturing gains through options and dividends. In my dividend capturing, I will typically hold on to a position for about a month or in some cases longer. This method can be used to capture more than one option by holding for longer than three months, or more. 

Fastenal Company, together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies. The company was founded in 1967 and is based in Winona, Minnesota.

   Fastenal Company (NASDAQ:FAST)
   Yield: 1.48%
   Dividend Amount: $0.17
   Ex-Dividend Date: January 30, 2012
   Beta: 0.97

I research and review many call options and estimate the expected probabilities based in part on Beta, Bid, Offer, Volume traded the current day, open interest, and time value / implied volatility. Call options offer some protection from possible adverse moves in the stock price and provide offset revenue when the options do not fully cover down moves in the stock. Income is welcomed, but not needed from option premiums, so a break even from option premiums received/stock losses ratio is a win.

I generally hold any given position for about three weeks. Now I use a few methods that produce consistent results. With the gains made, I am able to stop out and take a loss with the few that do not work out as planned. When learning a new trading strategy it is better to use a simulated trading account first. It is easy to make mistakes when starting out on a new strategy and mistakes cost a lot less with a simulated account. After a level of confidence is built, then it may be time to move into a real money account.In this article we will go over an upcoming dividend with Fastenal Company that I may capture with a minimum amount of risk. The criteria that I use is that I must be able to sell a call option in either the front, or first back month that is in the money, and with enough premium that I will not mind getting exercised early (which happens often and can be a good thing if the trades are executed correctly).

Strategy:
In combination with my buying Fastenal Company stock and after checking company updates, offer to sell the February $45.00 strike call for $0.17 over the intrinsic value. The option may get exercised early for a gain. In almost all cases I will sell the call option first to ensure the stock option leg is complete first. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about about $0.06. It is important to sell the call option hedge at or near the asking price for at least the minimum amount over intrinsic value. I will not want to try putting on the hedge unless the sale of the option (hedge) will provide at least the full $0.17 over intrinsic value. If my shares get called away the day before they trade ex-dividend as a result of the option buyer wanting the dividend I will make about $0.17Not all that great but not bad for about a week how holding. The most I can make is $0.34 if I hold the covered call through option expiration day and the stock gets called away. My last step (completed before making a trade on the same day) is to check company announcements, and news sources for possible events that may cause the stock price to move. This is especially important during earnings season. Learn more about stock options by clicking here.

The current trailing twelve months P/E ratio is 37.6. The forward P/E ratio is 31.9. The current book value per share is 4.94.
Investors have been rewarded with an increase of year-over-year revenue. Revenue reported was $2.77 billion for 2011 vs. $2.27 billion for 2010. The bottom line has rising earnings year-over-year of $357.93 million for 2011 vs. $265.36 million for 2010.The company's earnings before interest and taxes are rising with an EBIT year-over-year of $574.61 million for 2011 vs. $429.69 million for 2010.Rising revenue along with rising earnings is a very good sign and what we want to see with our companies. Be sure to check the margins to make sure that the bottom line is keeping up with the top line.

At $46.77, the price is currently above the 200 day moving average of 35.91, and above the 60 day moving average of 41.88.
The stock has moved higher in price 4.97% in the last month, and moving in price 53.17% from one year ago.
The stock is performing a little better than the overall market with a slight relative gain. When comparing to the S&P 500, the year to date difference is 0.54%.

Remember, you must buy a stock at least three business days before the record date (at least one business day before the ex-dividend date) to qualify for a dividend.
I use a proprietary blend of technical analysis, financial crowd behavior, and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. Nothing in the article should be considered investment advise, but you may want to use this article as a starting point of your own research with your financial planner.

Robert Weinstein Google+