This High Yield, Low P/E Name Has the Power to 'Keep Going'
In establishing a starter position, here's the trade strategy I used to enhance an already attractive yield.
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This covered call trade idea reminds me of a previous one around Ford F back in November. What's similar is it involves a company whose stock has a big dividend yield and low P/E ratio. The company has a bit more debt than I would like but it is manageable, and leverage should continue to drop.
Like Ford, analysts are somewhat tepid around this company’s near-term outlook, but that seems fully reflected in its stock price. Ford stock has remained quite rangebound since my article six months ago and I have rolled that covered call trade forward to pick up an additional option premium within those covered call positions. I am hoping for a similar "single" from the trade below.
The company in question is Energizer Holdings ENR, a conglomerate with several well-known brand names within its product portfolio. The company sells a large variety of different types of batteries globally under the Energizer, Eveready, Rayovac, and Varta brands. Energizer also markets several flashlights and lanterns. In addition, Energizer operates in the auto care segment with brand names such as Armor All and Nu Finish protectants, as well as the STP fuel and oil additive. Batteries and lighting products account for just over three quarters of overall sales.
ENR stock is down around a third so far in 2025 as the company's first-quarter numbers slightly missed estimates and tariff worries have also dogged the stock given the company’s international presence. However, management stated in May that Energizer should see limited direct impact from tariffs in fiscal year 2025 results thanks to already completed sourcing shifts and pricing actions. Approximately 5% of Energizer's cost of goods sold comes from China, and only 10% to 15% overall is exposed to reciprocal tariffs.
What has also dogged the company were a couple of ill-fated acquisitions. The purchases brought it the Rayovac and Varta branded battery and lighting business. However, the acquisition occurred just before the Covid pandemic. These buys also added a significant amount of debt to Energizer's balance sheet. Management has been using its free cash flow to prudently trim down those debt obligations in recent years and leverage has dropped from 6.1x in 2022 to a current 4.9x.
The effort to reduce debt has meant the company has not raised its dividend payout for over five years. However, at current trading levels, the shares yield 5.2%. In addition, the dividend is well-covered as current projections have the company earning around $3.40 per share this fiscal year, followed by just over $3.55 a share in FY 2026.
Energizer is not exactly an exciting growth play. However, with a P/E around 7x and an over 5% dividend yield, the stock should have little downside from here. I can also enhance the yield from this trade via the simple option strategy below.
Option Strategy
This is how one can initiate a holding in ENR with a covered call order. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the December $22.50 call strikes, fashion a covered call order with a net debit in the $20.35 to $20.45 a share range (net stock price - option premium).
This strategy provides downside protection of 15%, including three dividend payouts of 30 cents a share, with upside potential of 12.5%, including those dividend payouts, even if this equity trades down slightly over the option duration.
At the time of publication, Jensen was long ENR and F.
