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Top Trades for Wed, 20 Mar 2019 15:50 – BNS

FDX bouncing back a bit but I decided I don't like them enough to play the short puts again.  

In the Webinar, someone pointed out BNS and they are a lovely bank!  

Year End 31st Oct 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
Revenue C$m 21,597 23,944 24,049 26,350 27,155 28,775 29,291 31,073 33,079 +5.9%
Operating Profit C$m 8,347 9,300 9,066 9,398 10,276 11,106 10,805     +5.9%
Net Profit C$m 6,379 7,071 7,014 7,117 8,005 8,548 8,405 8,963 9,512 +6.0%
EPS Reported C$ 5.11 5.67 5.67 5.77 6.49 6.82 6.67     +5.9%
EPS Normalised C$ 5.11 5.67 5.67 5.77 6.49 6.82 6.67 7.24 7.79 +5.9%
EPS Growth % -1.2 +10.8 +0.03 +1.7 +12.5 +5.1 -1.7 +6.16 +7.72  
PE Ratio x           10.8 11.0 10.2 9.45  
PEG x           1.75 1.79 1.32 0.81
Profitability

What's not to love?  $67.25Bn at $54.85 and they are dropping $8.7Bn to the bottom line while paying a lovely $2.65 (5%) dividend!  Apparently, on the Toronto Exchange, they have options out to 2021 so they could even be a good Butterfly play for Canadians but, in the US, options only go out until Sept but still worth it so, for the LTP let's:

  • Buy 500 shares of BNS at $54.85 ($27,425) 
  • Sell 5 BNS Sept $55 calls for $2 ($1,000) 
  • Sell 5 BNS Sept $55 puts for $2.80 ($1,400) 

That's net $25,025 ($50.05/share) and $52.525 if assigned 500 more below $55.  Of course, it's just a 6-month sale so we should be able to drop the net another $5 into next March plus the $2.65 dividend brings us down to net $42.50 if all goes well in our first year.

As a long-term investment, if we can drop our net (including dividends captured) by even 10% a year – we're 10 years away from having a free stock.  So, let's say we do this with $25,000 today:

$25,000 buys 500 shares BNS

  • By year 10, we have paid off BNS, still collecting $1,325 in dividends.
  • Year 10, we buy #2 for $25,000, takes 7 year to pay because we collect $9,275 from BNS too.
  • Year 17 we buy #3 for $25,000 but now we have $3,750/yr in dividends from BNS and #2 so 4 years to pay off.
  • Year 21 we buy #4 for $25,000 and collecting $5,000 in dividends, again paid in 4 years 
  • Year 25 we buy #5 for $25,000 and collecting $6,250 in dividends, paid down in 3 years. 
  • Year 28 we buy #6 for $25,000 and collecting $7,500 in dividends, paid down in 2 years
  • Year 30 we buy #7 for $25,000 and collecting $8,750 in dividends, paid down in two years.  

So, 30 years from now we have 7 positions worth $175,000 paying $10,000 in dividends – all because we put $25,000 to work today in very boring blue-chip dividend stocks like this one.  You just need to keep picking stocks that pay 5% (easy to find) that you can sell 10% puts and calls against.  The nice thing is that the stocks and dividends will tend to keep up with inflation for you as well. 

Of course, it may not go perfectly and once in a while you may get assigned on the put side but it's a great thing to do for each child/grandchild you have if you can afford it so that, down the road, you can leave them something that will deliver them a nice, quarterly income for the rest of their lives.  

Just $25,000 now can provide your kid with an extra $10,000 a year for life (with no knowledge of stocks required) and, of course, the nice $175,000 nest egg. 


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