Tuesday, December 20, 2011

Chevron and Darden call income

          Darden restaurants (DRI) was profiled at a stock price of $47.36.  Today, DRI is trading around $43.92 which is a about a 7.25 percent discount.  I want to add more of this Dividend Machine and I always like a sale.  However, since my goal is income, I will sell covered calls on my new shares; let's analyze how
this works.

Buy DRI @ $43.92 Sell a February 47 call for $.60
If the call buyer takes your DRI at $47 your income is $47.60. (the sum of the strike price & the call premium)
$47.60 less what you paid $43.92 = $3.67 income
$3.67 income on $43.92 is an 8.35% yield.
Add the dividend of $.43 and your income is $4.10 which is a 9.33% yield.

Chevron (CVX) has been a stellar Dividend Machine.  Today it trades around $103, let's look at selling a call and see how it works.


Buy CVX at $103 Sell a March 110 call for $1.85
If the call buyer takes your CVX at $110 your income is $111.85 (the sum of the strike price and the call premium)
$111.85 less what you paid $103 = $8.85 income
$8.85 income on $103 is an 8.59% yield

Each example is a Dividend Machine.  While the price of each stock could go down during the call period, and you may be stuck with the stock, but you will own two companies that pay more than three percent dividend yields, and have increased those yields every year.

Good Income Invest

TheMoneyMadam


    
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