Wednesday, April 25, 2012

I am stuck with 500 shares of QCOM. What should I do now?

You all know that I am not a journalist.  I do not make a living writing about investing.  In this blog; I record how I invest for income in an effort to help you invest for income. 

With this in mind, I am again tempted to consider Qualcomm (QCOM) for income.   During the existence of this web/blog, I have opined on Qualcomm no fewer than five times.   I took the time to look at those posts and my investments in Qualcomm (QCOM) to see if this is such a good idea.

Each buy was based on 100 shares.  Our first buy was in January 2011 at $53.03 followed by two buys in July at $55.41 and $56.98 and two additional buys in November 2011 at $57.03 and $55.41. Add it up and I invested a total of $27,735 in QCOM.  Now remember QCOM is not a dividend machine because it pays less than a three percent yield, but it is an “almost dividend machine” and has provided, I think, very nice income.  Let’s see!

Each time I bought QCOM, I sold a call that if taken would give me about a 10 percent gain.  But none were taken.   None of the 500 shares fetched more than the strike price of the call at the expiration date so I got to keep all 500 shares.

Now I am stuck with 500 shares of QCOM.   How much income did this “almost dividend machine” earn me over the last year?  The answer is $3,771 in combined dividend and call income.  That $3,771 QCOM income is a 14% yield.  

What should I do now?  I could just sell calls on all 500 shares of QCOM and receive $325 immediately.    The strike price is $70 and if all my 500 shares are taken I would receive $35,000.  Using the cost basis of $27,735 the gain will be $7,265 which is about a 26.15% capital gain.  

 I could live with that gain.  However, based upon this past year’s history, I may not get that capital gain.  Therefore, I have to decide if I should continue to add to my QCOM position and write calls and receive dividends and call option premiums for an annual yield of 14% while I wait on that big capital gain.

You know what?  I’ll take the risk on QCOM to provide an income potential of 14 percent yield or a 26 percent gain.    Life is good even in these times.

Very Truly Yours,


P.S.  I will keep up informed on my QCOM buys and covered call sells.
Listed below are the posts on the QCOM buys noted above.