Tuesday, April 21, 2015

Investment Boredom

A boring week for income investors. 

Volatility is Weak:

Day traders like the 200 point moves that we have seen lately but volatility is really weak.    VIX is 13 ish.   Did you notice call premiums are cheap?  

Call sellers like calls to be expensive.  We need some real volatility to provide call option income on dividend stocks.  Speculation drives demand for options.

Options buyers expect to get in cheap.  Instead of paying $100 for a stock, they will pay $1.00 for the option to buy at $100.   And they will buy your shares for $100 when the stock is trading at more than $101.    When they are right, they can buy a stock with built in appreciation.  They are not investing for income.   They are investing for immediate capital gain. 

We call sellers are investing for that extra $1.00 of income and we need them to want to buy our stock.  Volatility is our friend.

Quality is  Expensive:

Hard to find  four percent yield in a quality stock that also has some growth.   I think  Caterpillar is creeping up but the calls plus the dividend is not exciting.   If you have to invest, you can find something.  

I did this in 2011.  I forced myself to pick one stock a week that met my four stock picking criteria (three percent yield was the income criteria.)  It was a kind of "Julie and Julia" year.   Seems risky as I look back on such abandon but it worked out really well.  That portfolio is up well over 50%.

We are Going Nowhere:

Copper is cheap and eggs are expensive.  Bonds are expensive and so it rent.  Utilities are evenly priced, retail shoppers are careful.   Corporations are awash in cheap money. 

Therefore, if you have to invest, you can find quality. I am looking for growing income in the form of dividends.   I just have not found anything this week that I like.   But there is always tomorrow.

When I find something I will write it up.