Monday, July 25, 2016

Play Gamestop with an October call

English: GameStop store, 2423 Ellsworth Road, ...
English: GameStop store, 2423 Ellsworth Road, Ypsilanti Township, Michigan (Photo credit: Wikipedia)
Gamestop, symbol GME is not quite a Dividend Machine. 

GME passes the criteria on dividend yield, on EPS (earnings per share) greater than dividend paid out, on D/E ratio.  Yet, their dividend increases have slowed lately.  Their dividend history is only 4 years and I like to see at least five years of steady dividend growth and most important they are closing stores and reworking their "game" plan and that has resulted in declining revenues.


However, this is the time of year to buy stocks that might have a pump up in revenue from the Christmas season.   This is by no means fool proof and I find I need to sell on the rumor or expectation rather than waiting for the news of pumped up revenues from Christmas.

Today I am using a covered call to justify my buying GME.  It is a cheap stock with a P/E (price earnings ratio) of only 8.19 and a call that will deliver a mighty 13.8% return should my stock be called away.

I am selling the call with an October expiration so that I get the dividend income as well as the call premium income.  See the details in the table below.

M* MoneyMadam
Disclosure:  Long GME with calls