M* Money Madam : Income for Retirees - Should we buy Apple AAPL

My husband is a growth investor and challenges me all the time to find a dividend stock that could come close to meeting his growth goals. These are not easy stocks to find. But finally, I will relent and buy Apple stock, AAPL.

AAPL is not a Dividend Machine

In 2014 I use four criteria to pick stocks that I count on to pay my monthly expenses. These stocks

have to provide enough yield to meet today’s expenses but also must show a high probability that they will increase my income to keep up with inflation. (Have you seen the price of hamburger lately?) AAPL is a stock that still has to prove itself on this very important Dividend Machine criteria.

Apple has declared dividends in for the past eight quarters. Remember that APPL also paid a dividend in 1995 before it lost its mojo.

Apple does not pay enough of a dividend, a 1.99% yield, to meet my ongoing expenses. I need about 3.5% so that rules out APPL on two criteria. The yield is not high enough and their dividend growth history is not yet strong enough.

On the two other criteria, EPS must exceed dividends, and D/E ratio, AAPL passes with flying colors. Take a look at the table below to review Apple’s Dividend Machine criteria.

APPLE is a good Income Stock

When I find a stock like AAPL that seems to provide both growth and income but is not quite a dividend machine, I look to covered calls to make up the income difference. Covered calls do not mitigate the risk that AAPL does not have enough dividend history to bet the farm on but they can make up the income gap.

AAPL Covered Calls are good and that is surprising to me. INTC and MSFT do not have very good calls right now. The VIX, which measures volatility, and is a glimpse into potential upside covered calls is still quite low. But AAPL has an October call that is worth a look. Going out 88 days also gives you the chance to get the dividend in August and maybe even in October. The table below illustrates the income you can make from a two difference covered calls on AAPL. One call expires in September and the other in October.