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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
Author Bio


Ecolab to announce dividend increase

Michael Fowlkes

12/2/2017 12:54 PM

What's Happening

Ecolab (ECL) has a lengthy 31-year streak of dividend increases, which it is likely to extend this week when it announces its next distribution. The stock recently hit a new all-time high, and shares are up 15.1% on the year.

Technical Analysis

ECL was recently trading at $135.85, down $0.93 from its 12-month high and $19.44 above its 12-month low. Overall technical indicators for ECL are bullish and the stock is in a strong upward trend. The stock has recent support above $129.50, and recent resistance below $136.75. Of the 18 analysts who cover the stock, nine rate it a “strong buy”, one rates it a “buy”, and eight rate it a “hold”. ECL gets a score of 73 from InvestorsObserver’s Stock Score Report.

Analyst's Thoughts

Ecolab has a very strong history of dividend increases that spans three decades. The stock has a relatively low yield of 1.09%, but that should rise a bit when the company announces its next distribution. With a low 31.5% payout ratio, Ecolab can easily afford another dividend increase this year, but investors should not expect a huge increase. The last two years the company boosted its payout by two pennies, and I would expect a similar increase this year. Look for the quarterly distribution to rise from $0.37 to $0.39, for a 5.4% increase. Expect the announcement this week, with the stock trading ex-dividend about a week following the announcement.

Stock Only Trade

If you're looking to establish a long stock position in ECL, consider buying the stock under $135.50. Sell if it falls below $122.00 or take profits if it gets to $156.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider an April 120/125 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (35.6% annualized*) and the stock would have to fall 7.6% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an April 150/155 bear-call credit spread for a $0.25 credit. That's a potential 5.3% return (13.7% annualized*) and the stock would have to rise 10.6% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider an April $140.00 covered call. Buy ECL shares (typically 100 shares, scale as appropriate), while selling the April $140.00 call for a debit of $133.50 per share. The trade has a target assigned return of 4.8%, and a target annualized return of 12.7% (for comparison purposes only). 



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