Thursday, April 7, 2011

Boeing - Trouble with a 14% return.

      Boeing, symbol BA,  is an almost dividend machine and my goal as an income investor is to try to get a 10% gain as soon as possible with this stock.
     First BA meets my criteria for a company that I would like to own but it is not a dividend machine as the yield is less than 3% and while BA has increased the yield periodically the increases have not occurred every year.   However, I noticed that writing or selling (the terms are interchangeable) calls on BA was productive in the past.  Boeing’s dividend yield at the time I bought it in August was 2.43% on the first lot and 2.53% on the second lot. 

      I bought in two lots 13 days apart.  My first buy was at $69.20 and I bought again when Boeing shares went down by about 4% to $66.34.  One of these days the “dreamliner” will actually be finished and I thought I could benefit from this development. 

     Since I bought Boeing, I have received two dividend payments of $.42 per share each quarter.  However, Boeing Corporation has been in the news lately and the new has not been particularly flattering.  Airplanes that fall apart in the sky are troublesome assets.  With that in mind, I was very surprised to find a covered call that would net me 10% if the call buyer buys the stock.

     Let’s do the math.  My basis is $67.77.  I received two dividends for a total of $.84 per share.  My call strike price (the price the buyer of my call will pay me if they exercise their right to buy my BA shares) is $75.  The income I received from the call that I sold yesterday 4/6/2011 was $1.44.  I should have waited until today because the premium went up but I made the trade yesterday so we will use that data to determine my potential gain. 

     If the call buyer takes my stock, my total return will be the sum of dividend income ($.84) plus call income ($1.44) plus the capital gain ($75 - $67.77 = $7.23) for a grand total of $9.51 which is a gain of 14% in 9 months.   I have done better see my post on IBM, but I will take 14% in less than a year every time.  Wouldn’t you?

      Since BA closed at $74.29, I am hoping that my call buyer will buy my shares.  If not, I have a dividend producer but I will have to evaluate if I want to continue to hold a company with bad news.
I’ll keep you posted.

Very Truly Yours,