Tuesday, January 31, 2012

Looking for money!

          Sometimes just waiting and seeing what is happening is the best move an income investor can make. You do not need to buy every day or even every week. I did finally get my Freeport McMoran trade at $45 and change and sold a $50 call but that is old news.

Friday, January 27, 2012

Call Income Dupont DD

I am awash in cash and want to make some income.  My cash came from calls I wrote between 30 and 90 days ago that were taken.   In other words, the call buyer paid me call income and then bought my stock from me at a tidy profit to me.   I tried to buy Dividend Machines for this trade but I find more call income opportunities in what I call "almost dividend machines."

Tuesday, January 24, 2012

Dividend Machine Con Ed January 23, 2012

Consolidated Edison – Rock Solid Dividends

Con Edison Plant on the East River - Viewed fr...
Con Edison Plant on the East River - Viewed from Greenpoint, Brooklyn (Photo credit: ChrisGoldNY)
             My Dividend Machine for this week, January 23, 2012 is an electric utility well known by income investors.  It has a fantastic history of making more money over time and of paying out more dividends over time.  As a matter of fact Consolidated Edison (ED) has increased the dividend every year for the past 37 years.  

I call it a rock solid Dividend Machine; others consider ED the ideal investment for widows and orphans.   Although I must say that I know a lot of widows who know how to invest,  but you get the point.  

ED is a stock worth looking at for the income producing portion of your portfolio.  Let’s look at the details.

Today, ED is trading around $58.62.  If you own it by February 13, 2012 you will receive the quarterly dividend of $.605 on March 15, 2012.   The annualized yield is 4.128 percent ($.605 times 4 payments divided by the cost basis of $58.62.)   This yield easily surpasses our hurdle of a three percent minimum annual dividend yield.   With ED’s history of raising the dividend for 37 years, the dividend analysis suggests this company is a reliable dividend payer and one would expect the dividend to increase in future years.

Earnings, as you know, must be greater than the dividend in order for a company to be considered a Dividend Machine.   The last four quarters of earnings per share for ED have been $3.71 per share well above the payout.  Moreover, they have increased earnings consistently.  I do not require a history of earnings increases in my four criteria for inclusion as a Dividend Machine, but it is nice to see that history.  This all means that ED has a lot of wiggle room should some event occur that reduces their earnings.  In other words, they should be able to continue to pay you income.

The final hurdle for a Dividend Machine is the balance sheet.  We use D/E ratio (debt to equity ratio) to determine overall safety of a Dividend Machine.  The last event we want is one of our companies goes out of business.  Few companies with a manageable D/E ratio go out of business.  We want a D/E ratio of 1 or less or within the range of the industry.   ED like all utilities needs a lot of money to operate and to buy and build facilities and equipment.  Their D/E ratio of .92 is very acceptable.


While I would love to find 48 Dividend Machines that also have covered call income potential, few utilities have that added income potential.  This is true of ED as well.  However, with such a healthy dividend and such as strong dividend history, I feel comfortable owning this Dividend Machine and think you should consider it for your portfolio.

Very Truly Yours,

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Tuesday, January 17, 2012

Johnson & Johnson JNJ Dividend Machine January 17, 2012 a core holding

English: logo Johnson and Johnson Česky: logo ...
English: logo Johnson and Johnson Česky: logo Johnson and Johnson (Photo credit: Wikipedia)
Johnson & Johnson (JNJ)

            It may seem funny that my Dividend Machine for this week, January 17, 2012 is one of the few stocks that is not up today.  However, this company is one you want to own for a long time.  Just think about how many products you need and you use that are produced by Johnson & Johnson.

            JNJ has paid dividends since 1944 and has raised them every year for 49 years.  A lot has happened over the past 49 years that could derail even the best company.   Any company that can increase our income through thick and thin is a company we want to own for income.

            JNJ’s last four quarter earnings have been $4.10 per share.   Their last four quarter dividends have been $2.22 per share.  If you own JNJ by February 24, 2012 you will be paid the quarterly dividend of $.57 on March 13, 2012.

            Fundamentals are important to every income investor.  While I do not use stock price as one of my selection criteria, I do concentrate on four fundamentals.   One is that the dividend has to be greater than three percent and JNJ’s annualized (four dividend payments of .57 each) yield at today’s price of $65.22 is 3.495 percent.   A second criterion is the company has to have increased the dividend for at least five years and with their 49 year history we have every right to expect JNJ to continue to increase our income.  Earnings need to be greater than the dividend and here again, JNJ passes with flying colors.  Finally, D/E ratio (debt to equity ratio) has to be 1 or less.  JNJ’s D/E ratio is .30.  Folks, this is a solid company.


            If any company qualifies as a core holding it is JNJ.   Use this profile as an example of the characteristics a Dividend Machine should own.

Very Truly Yours,

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Friday, January 13, 2012

Covered Call on FCX

          Yesterday and today I found my entry point for Freeport McMoran (FCX).  I posted last week that I would focus on FCX for income during this week. Earlier this week I could not find a call but yesterday and today with the perceived increased demand for copper from China, a call emerged.  Here is the math.

          Buy FCX                $41.90
          2/18/12 strike price $45.00
          Call income             $   .90

          Call income yield $.90/$41.90 = 2.149% yield
          Strike price yield if exercised (not including dividends) $4.00/$41.90 = 9.54% net gain

Have a great weekend.  Look for more income opportunities.  More ideas next week.

Very Truly Yours,

Wednesday, January 11, 2012

Dividend Machine Hasbro, HAS

Hamtaro plush from Hasbro
Hamtaro plush from Hasbro (Photo credit: Wikipedia)

Dividend Machine week of January 09, 2012

 The dividend income idea is becoming a crowded trade.   So many companies that I have liked as Dividend Machines are just too expensive because others are buying them.   Therefore, I have to look around for something not so obvious.  

My Dividend Machine for the second week of 2012 is focused on a company that others ignore.    How about toys?  Hasbro (HAS) has a fun and compelling story with all the toys, games, and more mature entertainment.   Operating since 1972, this company was a growth story and then it started sharing income with its shareholders.

Hasbro (HAS) closed today, Wednesday, January 11, 2012, at $33.25.  HAS provides a $.30 quarterly dividend for an annualized yield of 3.6%.  Earnings per share for the previous four quarters were $2.76.  Dividends have increased every year for 10years.  Debt to Equity is 1.03.  HAS qualifies as a Dividend Machine.

Additional income is available through covered calls.  Companies like HAS that go up and down with the Christmas cycle have opportunities to sell covered calls.   Today, an April $37.50 call paid $.40.   Income from this call provides a yield of 1.2 percent.  If the call buyer does buy your stock for $37.50, your gain (not including dividends) would be 13.98 percent.   These are the kinds of companies that active income investors are trying to find.

Lets assume you end up keeping HAS, in that situation your 3.6 per cent annualized yield increases to 4.8 percent by adding in the additional income from just this one call.    You know that we really try to buy companies that we feel we could own for a long time.   

HAS is a good lesson in the financial power of compounding through dividend reinvestment.  If you invested $5,000 10 years ago today (297 shares) and reinvested your dividends, your investment would have increased 151.29 percent to $12,538.   By reinvesting your share balance increased to 380 shares.   If you stopped reinvesting today and turned on the income to spend, your current dividend income of $1.20 per share per year would be $456 or a 9.12 per cent yield on your original investment.

Use HAS as an example of how to employ a Dividend Machine as one of your core income holdings.

Very Truly Yours,

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Sunday, January 8, 2012

Money and Metals

Money and Metals
                        No, this post is not about buying gold or selling silver, it is how to make income from dividends and covered calls on dividend paying stocks in the metals and mining sector.   Like you, I am evaluating how I did in 2011; looking for opportunities for more income and a company that I already own is going to be my focus this week. 

Thursday, January 5, 2012


          Telephone or Verizon?  Telephone carries the distinction of being a 2011 Dividend Machine see original post .   My cell phone service is through Verizon (VZ.)  Years ago I switched from AT&T and all the dropped calls to VZ and I would like to own it.  After all, VZ has a mighty yield.  But it is just a little early.  The last quarter Verizon finally made more money than they paid in dividends and that is progress.  We can see more progress on paying down debt but their D/E ratio is well above 1 at 1.44.    We just have to wait for this exciting company to meet our criteria to be included in our 2012 Dividend Machine list.

Very Truly Yours,

Wednesday, January 4, 2012

Dividend Increases

Watsco (WSO) profiled as a 2011 Dividend Machine just one year ago, just raised it's dividend. 

Tuesday, January 3, 2012

Emerson Electric, EMR First 2012 Dividend Machine

Emerson Electric 

            Already we have our first 2012 Dividend Machine in Emerson Electric (EMR).  Emerson has stellar fundamentals.  It trades today at about $47.80.


Covered Call on a dividend machine:

In addition, to being a company that I want to own over time, EMR has some good call options.  For instance, you can sell a call with a $52.50 strike price that expires in March, 2012 and receive a premium of $.60.  If your stock is taken by the call buyer you will receive $52.50 for the stock and $.60 for the call for a total income (not including dividends) of $53.10.  Subtract your cost basis of $47.80 from $53.10 and your gain is $5.30 per share.   Divide $5.30 by your cost basis of $47.80 and your net gain is 11.09 percent. 

If your call expires, you are left with a fundamentally sound company that pays a very nice dividend and increases your income every year.

EMR Dividend Machine Fundamentals


EMR sports a dividend of  $1.60   which is a yield of  3.35%  based on the closing price of $47.80.   Earnings of $3.27 exceed the dividend and have increased every year for 55   years.   D/E (debt to equity ratio) is very reasonable at .50.

Income investors, this is the way to invest.    Use Dividend Machines to create income two ways.

Very Truly Yours,


Dividend Machines 2012

2012 Dividend Project
            Thank you for reading this blog.  This is an introduction to my 2012 Dividend Project.  I hope that, like me, your investment income has benefited from the 2011 Dividend Project.