Monday, July 30, 2012

Drug Store Walgreens WAG Dividend Machine for July 30, 2012

Walgreens drug store electric sign, MilwaukeeWalgreens drug store electric sign, Milwaukee (Photo credit: mechanikat)
Dividend Machine for week of July 30, 2012 Walgreens (WAG)

            The ongoing effort to find a dividend machine, every week, continues.  This week I found Walgreens drug stores.  This huge company has raised the dividend every year for 36 years.  Their most recent dividend increase makes the dividend the biggest ever in company history.   To learn more about this dividend increase see this link.

            During the past four quarters, Walgreens earned $2.80 per share.   They recently made an acquisition that should set the stage for future business growth that will equal or exceed their stellar growth history.  WAG paid out $.90 in dividends during that same
period. Their current quarterly dividend of $.275 per share is for an annual dividend of $1.10.  Based on today’s closing price of $36.22, the yield is 3.04%.   WAG carries a debt to equity ratio (D/E ratio) of just 16%.

            I today I found an October call with a strike price of $40 that would pay me $.30.  I would like more income, however, the $.30 call premium is a yield of .83% and if I do this twice in a year, I have increased my yield to 4.7%.  (Add dividend yield of 3.04% with two call premiums yields of .83% that equals 1.66% and your total yield is 4.7 %.)   More simply, your income during one year is the sum of the dividend $1.10 and two call premiums of $.30 each all that equals $1.70.   Total income of $1.70 divided by your cost basis of $36.22 and your yield is 4.7%.

            If the call buyer actually buys your stock from you at the strike price of $40.00 you may lose the dividend or even the second call premium, but you gain $3.78 per share and you received the $.30 call income that is a gain of 11.26 percent. 

Walgreens (WAG) Oct covered call

Cost Basis
Strike Price
Call Premium

Gain in $ if assigned
Call Yield
Gain Yield

            This is an illustration of how a dividend machine that just barely makes the grade because the current yield is just 3.04% can create opportunities for income.

            Please note I will be on vacation until Monday, August 13, 2012.

Very Truly Yours,

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