How often am I asked “what is my entry point” on any
given stock? My answer is always the
same; I use my four dividend machine criteria to guide me.
When a company meets all four of the
criteria I use to define a dividend machine (EPS greater than the dividend;
dividend of greater than three percent; dividend increases every year for a
minimum of seven years and D/E ratio of one or less or equal to industry
standards), I almost always begin a position in that stock or I add to it, if I
already own it.
My newest 2013 stock to qualify as a dividend
machine is Kimberly Clark, symbol KMB. In
February of 2011, KMB also was a dividend machine. Click
here for a link to that post. In
2011 the stock price was $65.06 and the dividend yield was 4.8 percent. In 2012, KMB stock price appreciated quite a
bit and I did not include it in that portfolio.
I held KMB until it reached a high of $106 in early
2013. The current dividend yield at that
price had slipped to barely three percent and I locked in a big gain by setting
a stop at $103. My stop was hit and I moved that money into
another stock that paid more than three percent.
Today, I am again interested in KMB. Not only does this fine company qualify as a
dividend machine, it has an interesting covered call that is fit for an income
investor. Let’s take a look at the
dividend machine fundamentals of KMB and then at the covered call.
KMB
- DIVIDEND MACHINE FUNDAMENTALS:
This table presents KMB’s dividend machine
fundamentals. At the close on Monday,
August 26, 2013, KMB traded at $94.53 nearly a ten percent correction from
where I sold it. Earnings are $4.51 per
share with dividends at $2.64 the yield is 3.38%. Debt to equity is 1.53 which is pretty
typical for KMB and less than other companies in this space.
I do not use sentiment or trends to guide me to buy
a stock. I use these dividend machine
criteria and that strategy has worked out very well.
Just on the dividend machine fundamentals, I am interested in adding KMB
for income. But the covered call
opportunity is what sends this stock to the stop of my list for tomorrow,
Tuesday August 27.
KMB
- COVERED CALL OPPORTUNITY
I am partial to companies that provide more than
just dividend income; I like stocks with both dividend and covered call
income. Covered call income is usually
associated with growth stocks rather than a stogy company like KMB.
The call I have in mind is a January $100 for a
premium of $1.53 per share. It is rare
to find that kind of income on a stock like KMB. Furthermore, going out to January means that
if I hold the stock until expiration, I will also receive two dividends. This table shows the gain from this covered
call.
If I lose KMB again at $100, it will be my pleasure
to pocket the more than 9 percent gain.
If KMB just hangs around in the mid $90’s and I still own it, I have the
pleasure of at least a 3.38% dividend yield on a stock that has increased the
dividend for 41 consecutive years.
Moreover, I always get to keep the call premium which in and of itself
is a yield of 1.62 percent.
A Money Madam’s dividend and income strategy for
conservative income investors.
THE
MONEY MADAM