Monday, August 11, 2014

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.