When the going gets tough, it might be time to get defensive. This past week may have shed a light (at least for some people) on the fact that our economy is far from recovered. Besides concerns in the U.S., Europe still hasn’t solved many of their issues.
Many companies have felt the pain of that unrest as their shares have fallen in price. Still others are holding their own and are actually increasing their dividend. Here’s an options trading idea that takes advantage of one name that is lifting its dividend payout.
Trade Idea – Long Call
You might consider buying the Colgate-Palmolive (NYSE:CL) May 97.50-strike calls for a debit of $1.93 or less. This call will be profitable if the underlying stock rises and the call premium increases to more than what was paid. In this case, the breakeven price (at expiration) is $99.43. Gains are unlimited once CL clears this hurdle, while losses are limited to the premium paid.
Colgate-Palmolive is part of the consumer staples sector that can boast large free-cash flow and decent dividend yields. In fact, one of the main reasons CL is attractive is because of its growing dividends. Companies such as CL can be viewed as attractive defensive stocks in tough economic times due to the nature of their products.
From a technical perspective, the stock has been on a steady climb higher since the beginning of February. Just this past week the stock moved higher again and then pulled back towards the end of the week, providing a potential entry point for this long call trade.
A bullish sign would be if the stock can trade above Thursday’s high, which was $98.28. Keep in mind that CL is expected to announce earnings on April 26. It’s probably not wise to hold a relatively short-term position over an earnings announcement.
As of this writing, John Kmiecik does not own any shares mentioned here.