Wednesday, January 16, 2013

Darden DRI Buy low then sell a call.



Would you take a chance on an under loved company?

Consider this:  your downside is you buy a company that pays you more than four percent and if history has any predictive value, this company will pay you more and more every year. 

          If you bought this company five years ago, your income today would have almost tripled from $.73 per share in 2008 to $2.00 per share in 2013. Your principle would have about doubled from $21.35 to $45.36.  I like these kinds of risks.

Darden Restaurants, DRI is my first dividend machine for 2013.  I am going to add to my position, but I want even more income.  I am going to sell a call tomorrow that will yield another two and a half percent.   If the call buyer takes my Darden, so be it, I get a capital gain plus the income.

          These are my favorite kinds of dividend machines.  The tables below provide the dividend machine fundamentals and covered call details.






DIVIDEND MACHINE
1/16/2013


Darden Restaurants
DRI


Price when profiled
$45.36


Last 4 Qtrs Earnings
$3.48


Last 4 Qtrs Dividends
$1.93


Current Qtr Dividend
$0.50


Annualized Div Yield
4.41%


No. Years Div Increase
more than 6


Debt/Equity ratio
1.57


















Darden DRI Call
April $27


Strike Price
$47.00


Cost Basis
$45.36


Call Premium
$1.20


Dividend
$0.50






Gain in $ if assigned
$2.84


Call Yield
2.55%


Gain Yield
6.04%


Total Gain Yield
7.11%









            Companies with a good dividend history that encounter difficulties can be good investments.   Savvy income investors can use a company like DRI to attain up to 10 percent income when you add covered call premiums to dividends.  You have to be willing to hold a company surrounded by some difficulties for a while in case the call expires; and you have to be willing to give up a greater than four percent dividend yield to get an additional gain of between two and six percent if the call is exercised. 

TheMoneyMadam