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. 

                        This is not my weekly Dividend Machine.  This company has created for me more income than a typical Dividend Machine but it has been a rough ride.  You see sometimes, you can make more total income from companies that may not quite qualify as a Dividend Machine.  The company may have such a good history of both sharing income with their stockholders and opportunity for covered call income simply because what they produce is needed to meet the needs of a growing world population.  That may be a bit dramatic but Freeport McMoran is worth a look.  Perhaps my experience with FCX can help you make money from FCX or a similar trade.

                        Freeport McMoran (FCX) is in the business of mining metals.  Although I must admit I went kicking and screaming into this “materials, metals, and mining” sector.  Alfred Ferol, my mentor, helped me embrace the big picture and I applied my investing rules to find FCX.

                        I have written about FCX for high risk option income and you should read these posts as they illustrate how FCX has made me money and how risk plays a role. Links are provided at the end of this post.    

           About a year ago, just after FCX split, I bought again at about $56.50.  Friday it closed at $38.90 which means I have lost about 30% of my principal.   During this past year I have received a dividend income of 2.21%.   This is marginally acceptable.  However, when you realize that in March I sold May calls on part of my holdings, not one was taken.  In April I sold more May calls on the remainder of my position; not one was taken.  In July I sold calls again.  I still hold my original shares.   During the past year my income from dividends and call premiums was 7.14 percent.  But I am down 30%on the stock price.  This is when you have to have ice in your veins and have to believe in the strength of the underlying company. 

       I like the greater than two percent dividend yield enough that I do not want to sell calls with a strike price below my cost basis on my current shares.  Therefore, I intend to buy more FCX this week.  I am going to sell some calls at the time I buy it and I hope to be able to sell calls several more times during the year and eventually I hope the stock will appreciate and I will reap a capital gain on these new shares as I spend the dividends from my shares that are underwater.  Maybe, I will also reap a capital gain on my original position.  Let’s hope!  I'll let you know how it goes.

Good Income Investing

Freeport McMoran Posts