Monday, April 21, 2014

Dividends & Income When do I sell?

When do I sell?

I sell when a stock has increased in price so much that the dividend yield is less than 3% and I can boost my income from that stock position by selling calls.   

A few other circumstances may make me sell but this post concentrates on MSFT as an example of when I sell because my stock is taken by a call buyer.      

The story is described below.

MSFT a first time Dividend Machine.  This post includes the fundamental data that made MSFT a dividend machine and profiles a covered call opportunity to boost income.   Incidentally, the call was not taken. 

MSFT, a dead money conundrum.  This post shows that confidence in the dividend quality of a stock pays off. I added to my position.  

MSFT tests the best income investor.  This post shows how you can make income and capital gains on a stock like MSFT.

And then comes the payoff and the loss:

In January 2014, I sold April $39 calls on my position.   If you read the above posts, you know the basis on MSFT is about $27.50.    When I sold the calls, MSFT’s stock price was in the $36 range and at the high of the year.  This week, when April calls expired, I lost my MSFT.  The call buyer (s) bought them all from me.

The loss and gain are bittersweet.  Total gain on MSFT is in the fifty percent range.  But more important, I lost a stock that is increasing the dividend by over 20 percent per year on average.

If  MSFT corrects enough that I can get close to 3.5% dividend yield, I will jump back in.  Or maybe I will buy at less than a 3.5% yield when calls that will net me a four or five percent yield are available and forty percent capital gains are likely.

Until we find our next 2014 Dividend Machine, these are the kinds of stocks that make sense for income investors.


BTW, I also sell when the stock price has increased so high that the yield is less than 2.5% and the P/E ratio is at historical highs but no calls are available.  KMP is a good example.  

Another reason to sell would be a dividend cut or a big increase in debt.  PBI is another good example.