Tuesday, September 24, 2013

Dividends & Income from Potash POT



The world’s population continues to grow as does the need to feed people.   This fact is real no matter what the Federal Reserve’s policy on borrowing is or how dysfunctional our Congress is.  Economies can grow and contract, but the need to feed an ever growing population is permanent.   


Growing food requires fertilizer.



Con Agra (CAG) and DuPont (DD) were part of my portfolio until recently.   CAG’s stock price increased and forced me to set a stop.   When CAG weakened, the stop was hit.  DuPont (DD) and Dow Chemical (DOW) did not perform quite as poorly.   I lost my position in each of these two companies when I sold calls at strike prices that provided significant profit.  


I want investments in this space.  I think opportunities exist that will duplicate my experience with CAG, DD and DOW and provide income with capital gains.



Use Market Volatility to Find Bargains.



Potash (POT) is my target.   Potash’s stock price took a terrible plunge the end of July from $44 per share to $28 per share.  The plunge was related to a quarter of weak earnings.   All of the stocks in this space tend to be volatile, but POT is more volatile because its mines are in unstable places and can be affected by local unrest.    Lately, POT has scratched its way back up to the low $30’s.   I think this is a bargain price for yield hungry investors.



Take Profit and Reinvest for More Income.



Like all companies in this space, POT has been a regular dividend producer.   Although POT is not technically a Dividend Machine because it has not consistently raised the dividend every four quarters, the ten year dividend history is encouraging.    


If you owned POT in 2003 you would have received $.25 per share in quarterly dividends and today you get $.35 per share; a forty percent increase in income over ten years.


As an income investor I will move my proceeds from CAG, DD and DOW which provided just above three percent to POT which yields 4.34%.    Moreover, POT like these other companies, has enough volatility to provide covered call income potential.



Dividend Fundamentals.



This table presents the key data I use to determine if I want to buy a stock.   


Notice that POT pays a 4.34% dividend yield with a very low debt to equity ratio of .35.    Even during the rough years of 2008 and 2009, POT continued to pay a dividend.



This investment is not for the investor who cannot tolerate volatility.   However, the patient income investor, I think, will benefit from owning POT.   Do your own research; and there is plenty of opinion about this stock; then decide if POT’s enticing yield of 4.34% fits into the income producing portion of your portfolio.


The Money Madam

Tuesday, September 17, 2013

Dividends & Income - COP a well oiled money machine



Conoco Philips (COP) is truly a well oiled money machine.   


I am not profiling this stock as a dividend machine because it is already included in the 2013 Dividend stock portfolio.    By the way, COP was a Dividend Machine in 2011 as well.  The point of this post is to illustrate the money making potential of a company like COP.    


COP has provided a consistent dividend, it gave 2011 holders an extra 50 shares of Phillips Refinery (PSX) and as you will see below, COP has call option income opportunity.



RISK of LOSING COP


COP is at historical highs trading close to $70 today.    Even at this high price, the dividend yield is still 3.94%.   When I own a stock that is at a record high and I have significant profit, I try to work it for even more income by using covered calls.   


My theory is that if I lose the stock, there is always another stock to buy.   But, can I really find another stock that can deliver the returns that COP has?   Maybe I can find one, but probably not with the market at these lofty levels.   I may have to wait for a correction to find a good replacement. 
 

If I am going to take the risk that I lose COP to the call buyer,  I want to make sure the strike price is greater than the all time high and I want the call out far enough that I get the next expected dividend.   COP’s next expected ex-dividend date is October 11, 2013 and that dividend should be $.69.



COP Covered Call Calculations



I am going to show you two covered call options using two different cost bases.    First let’s look at how you would fare if you had bought COP when it was first profiled as Dividend Machine on May 16, 2011 and you sell a November $72.50 for a premium of $.50 or a January $75.00 call for a premium of $.66.





  

Next, look at the result if you bought COP as a 2013 Dividend Machine when it was profiled on April 9, 2013, using the same two calls.



 


Finally, what if you bought COP today?   See this table to determine your return.





Only you can decide if you want to trade into or out of a stock or when you are willing to risk losing a great Dividend Machine like COP to a call buyer.   


I still work my portfolio constantly and this post illustrates the analysis you can perform to help you make good income investment decisions.  


I will not add COP today but I am going to sell the January call on some of my position (cost basis is $55.37.)



The Money Madam