Monday, April 28, 2014

AstraZeneca (AZN) Risk to Sell

In 2013 I profiled AstraZeneca (AZN) as a Dividend Machine.   At that time the cost basis was about $54.  My personal basis is about $46.    Today, Pfizer (PFE) is making a bid to buy AZN and the results is AZN is up over $10.

AZN is no longer a Dividend Machine because of falling revenues that have caused EPS (earnings per share) to fall below their dividend payout.  All of you know that EPS must exceed dividends for a stock to be considered a Dividend Machine.  

I will still carry AZN in the 2013 Dividend Machine Portfolio since my model portfolios are buy and hold only.  However, I personally will be selling a June $80 call.   I placed the order and received $2.97 per call.

The table below presents the gains from this call using today's price as the cost basis.   I  hope the call buyer will buy my AZN.  My risk is that the call buyer does not "call away" (buy) my shares and I am stock with AZN; then the Pfizer deal falls apart; then because of revenue pressure, AZN reduces the dividend.   The other risk is the call buyer actually buys my shares and the PFE and AZN deal goes through and is successful and I miss out on blockbuster gains.

I will take the risks because my cost basis is low enough that even if I am stuck with  AZN and bad things happen, I can probably unload it at a profit.   Regarding the lost opportunity of losing AZN;  my feeling is there is always another stock to buy.

The Money Madam