Monday, August 19, 2013

Dividends & Income on spin off companies

Two dividend machines from 2011 initiated spin off companies that provide dividend and income investors with covered call income opportunities.  

Two examples, Abbott Laboratories spin off of AbbVie, and Conoco Phillips spin off of Phillips 66, are discussed below.


Abbott Laboratories, symbol ABT, was one of the first stocks I profiled as a dividend machine in 2011.    ABT spun off the company AbbVie, symbol ABBV.   While ABBV pays a nice 3.2% dividend, I find opportunity to supplement my income with covered calls.

This tables illustrates the value of a November $45 call on ABBV using today's intra-day price basis of $43.57.   My broker calculates the basis as $29.50 from the spin off.

The point of selling an ABBV call is not for a capital gain.   Although that potential for capital gain is nice,  I would actually like to keep ABBV.  The point of this covered call is to boost income and the call premium of $1.20 for an immediate yield of 2.75% is compelling.


Similarly, Conoco Phillips, symbol, COP, initiated a spin off of Phillips 66, symbol PSX.   PSX pays a 2.22% dividend yield.   Again, a covered call provides an opportunity to boost income.

This table uses today's intra-day price of $55.50.  My broker calculates the basis from the spin off as $64.17.

It is significant to note that the strike price of $65.00 provides a return of my capital.   I would not sell the call if it resulted in a capital loss.

I would stick with the 2.22% yield until either the stock price comes back or I can sell an "in the money call" .. a call with a strike price equal to or greater than my basis.

These are two calls for dividend and income investors to consider for the income producing portion of their portfolios.

The Money Madam