I will return from vacation on Monday September 15, 2014.

TheMoneyMadam

Active Management or ETF's ?

Today on CNBC they reported that 90 percent of active funds underperformed passive funds like ETF's.  



TheDividendMachines of 2014 would be considered an active management as we pick stocks.  I just do not buy or sell after the portfolio is established.   We are beating the two passive ETF's that are oriented toward income.   We are beating on capital gains but just barely.  We are killing them on income; and is that not our investment goal?

Take a look at the comparison presented in the table below.






Have a good Labor Day.

I will be on vacation until Monday, September 15, 2014

TheMoneyMadam

Dividends & Income boost INTC November covered call

Combing through Dividend Machines with enough price appreciation that dividend yield is below three percent.    Here is an Intel, symbol INTC, call worth consideration if you hold INTC and want to boost your income.



TheMoneyMadam

Dividends and Income 17% Dividend Growth 50% Capital Gain 2011 Dividend Machine Portfolio

How many investments have delivered these results;  fifty per cent capital gain in 3.5 years, seventeen percent increase in income?  That dividend growth rate provides more than four percent per year of income increases.



Stocks and Bonds

The stock market has been an equity investor's friend.   The bond market has been a friend as well.  But the bond market cannot deliver the income.

In this blog I pick and monitor stocks I call Dividend Machines.    I also pick discount bonds.  Because bonds are so expensive, few discount bonds are available for the ordinary investor.   Stocks on the other hand are available.   Moreover stock prices move up and down in reaction to things over which the ordinary has no control.   It is a fool's game to try figure out the stock price moves of a specific company, but you can use fundamental data to determine if as stock is the right investment for you.

Look at the 2011 portfolio of Dividend Machines.
 

This portfolio was built from November 2010 through November 2011.  The portfolio is three and one half years old.    If you bought 100 shares of every stock I profiled your investment would be up around fifty percent and the income from you investments would have increased more than seventeen percent.

* See Model Portfolios for holdings  http://www.themoneymadam.com/p/model-portfolios.html

I guess you could do better some where but I am going to stick with TheMoneyMadam's Dividend Machine criteria to pick stocks for the income producing portion of my portfolio.

TheMoneyMadam

A lesson on how to make money on a break even stock. TheMoneyMadam

The Income Investor Set Up.

Even the best income investors get caught in the income investor setup.   You analyze data and decide that a stock, a stock with a history of increasing the dividend about thirty three percent per year and a nearly 3% dividend yield is a good stock for you.  This stock has earnings that are much greater than their dividend payout and the D/E ratio is very acceptable.   You buy that stock.

Time goes by, you cash those dividend checks, you may even sell a covered call to boost that meager 3% dividend yield and you expect the dividend increases to continue.  

Now comes the bad news.   The expected dividend increase doesn’t happen.  Stock price is just barely above where you bought it and your yield is less than 3% now.   You find no covered calls to boost your income and provide the 10% capital gain you expect.   What should you do?  Would any event make you buy more or sell your position?

The Decision to Sell at Cost

The stock takes a tumble on bad news.   The price drop is not enough to make the dividend yield high enough that you might add to your position particularly since the dividend increases have stopped.  

The company is still safe.  Earnings exceed dividend and D/E is o.k. so your stock is not going to go out of business.  But you are an income investor and you need to find a stock with a 3.5% yield that has a better chance of maintaining dividend increases or you to need sell calls that boost your income but provide no capital gain.   You investment now is like a bond.  You get back your basis if they take your stock and you still have income if they do not.

I bet you think I am talking about INTC but I am talking about Packaging Company of America, symbol PKG.

I am just underwater on this stock that yields 2.92%.  I have enjoyed regular and increasing dividend income until the last quarter when the dividend did not increase.   I even scored one covered call but the fun is over.  The stock slumped on Wednesday and I sold an October covered call at my cost basis of $67.50.  The call premium income was $1.00.    If they take my stock the investment is like a bond.  I get back my principle and I got income too.   If I still own PKG in October, I will reassess what to do with the position.

The lesson is to look at positions that are break even and determine if you should sell calls at that basis and risk losing your stock just to pocket some income.   The choice is yours.

TheMoneyMadam

Apple is an income machine if you use covered calls

My most recent favorite stock for income is AAPL.  


Apple is not a Dividend Machine because the yield is too low and their dividend history is not as well established as is needed to be a Dividend Machine.  How then could Apple be my choice for income?   Covered Calls.




As you know, I like to sell my calls with expiration dates that are far enough out that I get both the call premium and the dividend.   With that in mind I looked for a November call on AAPL.   Apple's most recent quarterly dividend was $.47 per share.   Their ex dividend date, which means you have to own the stock before the ex dividend date to receive the dividend payout, was August 7, 2014.   That leads me to think their next ex dividend date will be about November 7, 2014.   So I looked for a call that expires after November 7, 2014 that way I get the dividend and the covered call premium. 


The call presented in this table has an expiration date of November 22, 2014 about 103 days from now.   The strike price of $105 is nearly a 10% increase over the cost basis of about $96 today.  The call premium; the money you pocket no matter what, is a mighty $2.30 for an immediate yield of 2.4%.   Add the call premium to the dividend and you have quite a nice income stock. 

Note that the Gain Yield of 12.26% is calculated by adding the call premium ($2.30) the dividend ($.47) and the gain if assigned ($9.00) divided by the cost basis.  In 103 days you could make over 12% if the call buyer takes your stock.


If the the call buyer does not take your stock, you own a company that pays a nearly 2% yield and provides many opportunities to sell covered calls to boost your income to at least 4.4% which is the sum of the call yield of 2% and this one call you sold for 2.4%.







My newest favorite income machine is Apple, symbol AAPL.  Work it like we did Qualcomm.

TheMoneyMadam