Tuesday, May 24, 2016

MSFT, MCHP, CAT More calls for more income!

Readers of this blog know I use covered calls extensively to boost my income.  What is a girl to do with interest rates so low and with dividend stocks being priced high?  I still think the best income investing during these times is to use high quality dividend stocks with covered call potential.

CAT, MCHP, and MSFT

Among the many stocks on which I tried to sell calls today are these three:  Caterpillar, Microchip Technology and Microsoft.  I have owned them all for a long time.  As a matter of fact, Microchip (MCHP) was the very first Dividend Machine I wrote about in late 2010.

English: Wheel loader (front end loader) made ...
English: Wheel loader (front end loader) made by the Caterpillar company. (Photo credit: Wikipedia)
Caterpillar is so very weak.  I added a little last October.  I am working those shares for income with calls.  I am reinvesting the dividend on my other shares, with a higher basis, as it is too late to sell them and the yield of 4.4% is good.   I don't want to add anymore CAT because their EPS are less than the dividend ($.46 versus $.77) and because their revenues have collapsed ($47,011m in 2015 versus $65.875m in 2012.) 

Here is the CAT call I sold today:





Microchip Technology on trade fair Embedded Wo...
Microchip Technology on trade fair Embedded World a few minutes before opening the fair, Nuremberg, Germany 2008 (Photo credit: Wikipedia)
Microchip Technology, in an effort to grow, has acquired other companies and used debt to do it.  A 1.13 D/E ratio is too high for me.  Intel, for instance, has almost no debt.  MCHP is not so bad a company that I need to sell it.  Indeed, they are working through this acquisition.  However, their dividend growth rate is so meager I will sell calls with strike prices close to the current trading price hoping the call buyer will take my shares and I can move into a higher yielding stock.

Here is the MCHP call I sold today:




Microsoft is a good dividend stock. MSFT actually meets all my fundamentals.  However, it is expensive.  MSFT sports a P/E (price to earnings ratio) of 40.  Note that AAPL has a P/E of only 10.85. 

WELCOME TO Microsoft®
WELCOME TO Microsoft® (Photo credit: Wikipedia)
MSFT just barely meets my dividend yield criteria of 2.75%.  At today's price of $51.40 ish their yield is 2.88%.  I need more than 2.88 so I am supplementing my income with calls.

Here is the MSFT call I sold today:



This post is another example of how to your dividend stocks to create more income.

M* MONEYMADAM

Disclosure:  Long all with calls