Tuesday, March 6, 2012

Can we find a dividend machine in a down market?

Dividend Machine for Week of March 5, 2012  Nucor (NUE) 

                The market is weak today because of lingering international fears.  We have the Greek debt crisis, Iran and Israel, and we have reports that the global economy is slowing.   While it is counter intuitive to think that traders will pay you for a covered call when news is bad but sometimes traders see this as a chance to get in cheap.  They do not buy the stock, they buy your call and have to put up only a fraction of the capital necessary to benefit if news improves.   When we can get this kind of action on a dividend machine, it is a good opportunity for income investors.

Current quote available at the end of this post.
                Nucor (NUE) makes steel.   They have been making steel for a long time and have been paying their investors a nice dividend.   Trading today at about $41.20, Nucor’s annual dividend yield is 3.4%.  You will receive the quarterly dividend (the 156th consecutive dividend Nucor has paid) on May 11, 2012 if you own it by March 28, 2012.   Earnings are $2.45 per share and debt to equity ratio is a very reasonable .57.


                If you buy Nucor today and sell a July $45 call, you can make an additional 2.74% from the call premium, which is $1.13.  If the stock is taken by the call buyer, you will receive a 9.22% capital gain on your shares.  In addition, you will receive the dividend during the time you hold the stock.  If the buyer of your call does not take NUE, you still have a company that pays above the minimum of 3% and has increased your income every year for 39 years.

                I like this investment as the dividend machine for this week.

Very Truly Yours,