Thursday, October 6, 2011

Find more income from COP

RODEO, CA - JANUARY 25:  Cars drive past the C...Image by Getty Images via @daylife

Finding Money in COP

                This brutal market has some recent life and we income investors are always looking for ways to increase our income.   I know it is hard to stomach stock price reductions but you have not lost money unless you actually sell.

                I sell when fundamentals change such as a company reducing or stopping a dividend or taking on so much debt that I get nervous about their balance sheet or debt to equity ratio.  I rarely sell on price alone.

                Rather, if I am nervous about a stock that is down at least 10 percent I look either to add to my position or to write a call that will at least get back my original principal and provides a little spending money from the covered call.

                I scan through my dividend machines and I find COP, Conoco Phillips qualifies as a company that is down 10%.  When I profiled it,  see my original post on COP, the stock price was $71.43 and today it is trading at $64.04.  I could add to my position but I do not want to commit additional capital just to make more income.  I can write a January call with a strike price of $70.00 that will pay me $1.95 and I get the dividend of $.66 during that time.    If they take my COP, I will have made $1.95 in call premiums and three dividend payments of $.66 each on an investment of $7,143, which is a yield of 5.5% in just nine months, and I get back my principal.  

                If you hold more than 100 shares, you might consider this type of strategy on some of your holdings.  If you have capital to invest, you could add to your position at today’s price of $64.04 and write the January call and if your new shares are taken, your return will be 8.57 percent.  On the other hand, you can just not look at the stock price and enjoy your $2.66 per share in dividend income.    You have three choices for finding more money on your investment of COP.

Very Truly Yours,

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