Wednesday September 05, 2012
by Chuck Carlson, editor DRIP Investor
It is perfectly legal for company “insiders” to buy or sell their own company stock. The good news is that, because such purchases have to be reported to the SEC, individual investors can track such buying by corporate insiders.
One recommended stock in our Editor’s Portfolio that has realized a spate of insider buying is H&R Block (HRB).
Board member Paul Brown purchased 1,200 shares of Block stock at $16.01 per share around July 1. That purchase was followed by another insider purchase, this time by Gregory Macfarlane, the company’s Chief Financial Ofﬁcer.
Macfarlane purchased 6,300 shares at $16.05 per share around July 8. Macfarlane is a newcomer to H&R Block, becoming the CFO effective June 4, 2012.
Thus, his stock purchase may be a “good-faith” move on his part, but it is still noteworthy anytime an insider spends six-ﬁgures to buy his or her company stock.
H&R Block stock has had a nice rebound in recent weeks and is trading just below its 52-week high of $17.46. The stock is getting some lift from its attractive dividend yield of 5.0%.
The stock pays a quarterly dividend of $0.20 per share, giving it an annual indicated dividend rate of $0.80. Block is expected to earn $1.61 per share for ﬁscal 2013 ending April 30, up from $1.28 in ﬁscal 2012.
So the dividend appears well covered by profits. However, Block has a history of shooting itself in the foot, so investors who buy these shares need to understand that the stock will likely have bouts of volatility.
Next year promises to bring big changes to tax laws, partly as a result of the new health-care law. That could mean greater demand for Block’s tax services.
The stock trades at 10 times ﬁscal 2013 earnings estimates, a reasonable multiple. For investors looking for yield and willing to take on some price volatility, these shares have appeal.
Please note that Block offers a traditional dividend reinvestment plan whereby investors must be a shareholder of record of the stock before they are eligible to enroll in the plan.
Learn more about this financial newsletter at Chuck Carlson's DRIP Investor.