Monday, June 4, 2012

6.7 Percent Yield in this market? Where?

How to get a 6.7% yield in this market


                Every once in a while, an opportunity in income investing presents that is hard to turn down.   I noticed this trade late on Friday and it is still available today.   You can invest a minimal amount of principal, about $2,350 in a company that has paid dividends every year since 2002.  This is a company with very little debt.  It sports a D/E ratio of .17.    Because the dividend is less than three percent and it has not increased the dividend every year, this company does not qualify as a dividend machine.   However, I have made a lot on income on companies I call almost dividend machines by selling covered calls.

                When I sell covered calls I like to get a yield of at least one percent.  Moreover, if the buyer of my call takes my stock, I expect to get a gain of at least ten percent.  Marathon Oil, symbol MRO, provides an even better opportunity.  The tables below clearly illustrate the value of this transaction.

FIRST:  Let’s look at MRO’s fundamentals as an almost dividend machine.

Marathon Oil Fundamentals



Price when profiled
$23.48
Last 4 Qtrs Earnings
$3.33
Last 4 Qtrs Dividend
$0.58
Current Dividend Yld
2.89%
No. of Years increased
0
Debt/Equity ratio
27.00%


SECOND:  Let’s look at the income available if you sell an October $25 covered call for a premium of $.150.

CALL OPTION MRO



Cost Basis
$23.47
Strike Price
$25.00
Call Premium
$1.50
Dividend
$0.00


Gain in $ if assigned
$3.03
Call Yield
6.39%
Gain Yield
12.91%


FINAL TABLE:  The table below adds in the quarterly dividend you are likely to receive if you hold this stock through October.

CALL OPTION MRO



Cost Basis
$23.47
Strike Price
$25.00
Call Premium
$1.50
Dividend
$0.17


Gain in $ if assigned
$3.20
Call Yield
6.39%
Gain Yield
13.63%


                I am buying MRO today and selling this call.  I cannot think of a better way to make over six percent income on my investment.

Very Truly Yours,

TheMoneyMadam