Tuesday, November 4, 2014

Covered Calls on bad Dividend Machines DRI, INTC

If you are a buy and hold investor and your emphasis is income, you can improve your financial success by using covered calls. 

Two big reasons that covered calls will help you be a better investors are:   (1) covered calls boost your income and (2) they restrict your ability to sell low.   

Two stocks that I bought as Dividend Machines that have not been as stellar as I had hoped are DRI and INTC.    I could have sold low.   But because I used covered calls, I boosted my income over time and I did not sell them at their lows because I could not; the shares were on lease to the call buyer.

Below I discuss two of my less than stellar Dividend Machines. One stock is considered dead money with management issues and an over 4% dividend yield.

The second an example of a stock that pays under a 3% yield with no yield appreciation.

Darden Restaurants, symbol, DRI

Darden does not qualify as a Dividend Machine today because their most recent earnings are less than their dividend payout.  They continue to pay, but not increase their dividend.   Debt to equity is still o.k.  DRI, is dead money except that it moves between $47 and $53 quite often and this provides the opportunity for boosting your income by selling a covered call.   If your stock is called away so be it.  Or you could end up like me and sell calls on this baby several times a year.  I want an additional one percent in yield from the call so in the case of DRI, trading at $52.67 on Tuesday, November 04, 2014 the call premium has to be no less than $.53.    Here is the call I will look for tomorrow.


Where are you going to get nearly 2 percent on a less than 90 day obligation?  Do I really want to lose a stock like DRI? 

Intel, symbol INTC

Intel’s dividend yield is only 2.62% and it we have not received a raise in quite a while.   But you can keep you position in Intel and make it yield much more with the call I will try for tomorrow.  INTC closed at $34.54 so I want at least $.35 from a call.  This call traded at $.47 today.

Intel's call is different from the DRI call.   I would be willing to add to my position in INTC at this point provided that I could sell a call like this.  I would not be willing to add to DRI at anything above $50.

Work your portfolio of income stocks to squeeze more income from your losers ... or as I like to call them "less than stellar assets."