Thursday, February 25, 2016

Watsco (WSO) justifies 2016 Portfolio status

This year, 2016, my very first addition to the portfolio was Watsco, WSO.   I liked the fundamentals which I will summarize in a table below but at the time of purchase, no calls were available.

One of my criteria for 2016 is a stock with good calls.  I decided that patience is indeed a virtue and that I would hold WSO until a call came available.   I did not think it would happen this quickly but it has.

WSO Trade History

Watsco, symbol WSO, an HVAC company was one of my very first Dividend Machines for 2011.  Here is a link to that post.

In the past I personally owned Watsco although I did not buy it until well after I profiled it as a Dividend Machine.

WSO was a very nice income stock with good dividend growth and a real interest in its stockholders.   I say that because in 2012 tax rules were not solidified until very late in December.   WSO, decided to pay a several years of dividends early.   In my mind this was quite nice as I paid only 20% on the income instead of a higher rate.  In the end the tax rules stayed the same but WSO was thinking ahead and I liked that and decided to drive in.

I sold calls on WSO and eventually my shares were assigned which means the call buyer exercised their right to buy my shares at a set strike price.  The left hand table illustrates how that trade worked out.

WSO continued to pay a regular quarterly dividend, although much less than before the special distribution.  Dividend growth has been stellar and recently the stock price has also inched up a bit.

2016 WSO Trade

January 6, 2016 I named WSO as my first stock to be included in the 2016 portfolio.  Here is a link to that post

I was hoping that a call would come up that made this trade worth it and today I executed covered calls with a strike price of $130 for a premium of $3.00 per contract.   The call expires April 15, 2016 and I expect to receive the $.85 dividend as WSO should be ex-dividend before the call expires. 

To remind you, I like at least a 1% yield from the call premium plus at least 8% capital gain should my shares get called away.   If you make this trade once a year you can easily make 10% on your buy.   Notice in the table below that I am using the actual cost basis from January and not today's price.

Selling this covered call justifies including WSO in the portfolio for 2016.  The final table of this post is an updated review of the 2016 Portfolio.

M* TheMoneyMadam
Disclosure:  Long WSO with calls