Microsoft Corp. MSFT – off over
10% should you Buy, Sell or Hold?
MSFT is a solid dividend machine
as noted in my post on October 8, 2012 you can read the original post by
clicking on this link http://www.themoneymadam.com/2012/10/microsoft-msft-took-long-time-to-show.html. However, Microsoft’s stock price is off
over 10%. MSFT traded at $29.85 when I
first profiled it as a dividend machine and today it is trading at $26.74 a
loss of 10.4%.
How should advanced, conservative
income investors approach this dilemma?
The conservative part of the
strategy is not difficult. You could
just hold MSFT and wait for the dividend to increase as it has done every year
for about eight years. You have to hold
your nose and ignore the unrealized 10% loss.
I am confident MSFT will come back.
One of my reasons for being so confident is the traffic I get on this
blog site. Most of it comes via
Microsoft related products. Only a small
portion comes through Apple/Mac projects.
The advanced, income investor
always looks for ways to squeeze income from our holdings provided we get our
principle returned or we receive a capital gain. Here is how I, an advanced educated income
investor, am handling this MSFT conundrum.
I added to my position (I bought
at $26.64) and then wrote a call on my added shares. I continue to hold the original shares I
bought in October. These original shares
are not on call. The call on my new shares expires in March;
the strike price is $28 and the premium I received is $.40. Provided the call buyer does not exercise the
call until the expiration date and I still own these shares on February 19,
2013, I will receive the dividend of $.23 on March 14, 2013. My income on these additional shares is
$.40 + $.23 for a total of $.63 or 2.35% in just 60 days. If I can repeat this trade 3 times in a year,
I have boosted my yield to over 6 percent.
Look at MSFT as a reliable income
instrument if you HOLD, and an even better income machine, if you BUY shares
then SELL a covered call.
TheMoneyMadam
Microsoft Call
|
March $28
|
||
Strike Price
|
$28.00
|
||
Cost Basis
|
$26.64
|
||
Call Premium
|
$0.40
|
||
Dividend
|
$0.23
|
||
Gain in $ if assigned
|
$1.76
|
||
Call Yield
|
1.43%
|
||
Gain Yield
|
6.29%
|
||
Total Gain Yield
|
7.11%
|
||
