Thursday, March 15, 2018

Nucor Earnings

Nucor, symbol NUE, earnings update.

M*   Long NUE with calls

Tuesday, March 13, 2018

Breaking all my rules with these trades

I want to increase the cash flow from my portfolio. To increase cash flow, covered calls are a technique used by many portfolio managers.  Covered calls are the only options I sell and the only options I write about in this blog.  I decided to employ some of the capital in a Conversion Roth IRA and I decided to take more risk than in my dividend growth portfolio.

  • Short expiration dates with high premiums
  • Continue to sell calls even on stocks that are underwater
  • Exit strategy for dividend paying stocks is to have them assigned.

Let's take a look at the stocks I bought so far and the income generated.  I am not concentrating on growth companies or value companies.  I am looking for stocks with vigorous calls.   Although I expected to roll the calls quickly using expiration dates not far out.  However, I have deviated even from that idea with at least one stock and that is call I sold on RIOT a very speculative block chain stock.  

QCOM:  Qualcomm

Qualcomm was the first stock I bought at $64.87.  The $70 call on QCOM which paid me $1.25 will expire this Friday 3/16/2018.  Based on how QCOM is trading with the news that their being acquired by Broadcom is dead QCOM is below my cost basis.  Therefore, I expect the call to expire.   I will immediately  begin looking for another call next week.

QCOM has the advantage of providing a nice dividend. My cost basis is $ 63.12 when including the call premium and the dividend.  I do not have an exit strategy on QCOM and I am hoping to work the calls to yield significant income.  

NUE:  Nucor

I invested a lot of money in Nucor: 400 shares at $66.60.  I sold a February $70 call and received $1.35. The call expired and I immediately sold a $72.50 call on all shares with an expiration date of April 20, 2018.  Like QCOM, Nucor pays a dividend which I should get provided my shares are not called away prior to 3/28/2018.  My cost basis is now $63.82.

Again, I do not have an exit strategy on NUE, I will continue to sell near the money calls with short duration expirations and high premiums.

RIOT: Riot Blockchain

RIOT is a total departure from my typical strategy.  I bought this stock at $21.08.   My first call yielded quite a nice income of over 10%.  But the stock has crashed and burned.  My first call expired and I immediately sold another call but had to go out to June to get a decent premium of $1.00.    Right now my cost basis is $21.08 less the income of $3.25 or $17.83.

RIOT could go belly up by then, it could also easily go up enough that my stock is assigned at $12.00 and I would have lost $5.83 or 32.679%.  My exit strategy is to have this stock assigned or have it go belly up.

AAPL:  Apple

And then I invested in AAPL at $176.98.  My first call for a strike price of $195  expires on April 20, 2018.  I received a call premium of $2.25 and the dividend of $.63 making my basis $174.15.  Today Apple is trading at about $181.30 so I am in the money but not yet at risk of having my shares called away.   AAPL's all time high is $183.50.

Like every stock that pays a dividend, my exit strategy is to have this stock called away at some point while I sell calls as often as I can at the highest premium possible.

TWTR: Twitter

This trade is more emblematic of what I want to do in this account.   I bought TWTR at $25.91 and sold a call with an expiration of just 4 days away.  I received $1.15 for the call.  It was exercised at $27.   My income on this stock is 8.64% in just four days.  

Twitter is also an example of how selling covered calls limits upside potential.  Today TWTR is trading at $34.185.   You could buy TWTR today and sell a call 31 days out (4/13/2018) at a strike of $36 for a premium of $1.10.   Not as compelling as the four day call.

I am going to bank my money from Twitter and use it to fund my next buy.

GILD:  Gilead

And that next buy was Gilead at $79.99.  I sold a May $87.50 call for $1.10 and I should receive the dividend of $.57.  Like the other dividend stocks, I do not have an exit strategy other than having this stock called away.  

Gilead's high is $123.37 and I just may have my shares assigned.  If so I make 11.72% in a very short time frame.   If my call expires, I will continue to sell calls.

The Table below presents all the information on these trades.

I currently have $62,822 working and my yield so far this year is 4.51%.  As with all my portfolios, I will report on the results no matter what the outcome.  I write up these ideas so I can learn, as I hope my readers learn, what works and what does not.

M* MoneyMadam

Long: all stocks in the table with calls.  

Wednesday, March 7, 2018

High Yield Bond - MoneyMadam's history

High Yield Bonds were enticing for income investors, including me, while we were in a low interest rate environment.

  • High Yield Bonds are not for beginners
  • Pay a steep discount
  • Risk is high

Since I started writing this blog about income investing,  I invested $81,670 in high yield bonds.  Each buy was for 10 bonds.  Eight different bonds make up the portfolio.  

TheMoneyMadam's High Yield Bond Portfolio

The table below lists the bonds I bought with CUSIP, coupon rate, and maturity date.  The portfolio holds only one of the eight bonds.  The others defaulted, were redeemed or tendered.  

It was a rocky and mostly unsuccessful venture.  My $81,670 turned into $72,949 not including income.  That is a 12% loss.  When adjusted for income the loss is cut to 4% but I don't like losing money.

If you read the dividend ideas on this blog you will see over the same time frame, I bought $875,687 worth of stocks.  The high yield bonds make up about 9% of the investments that I track in my portfolios. That alone is a good lesson. If you are going to take risk, you must keep it to a minimum.

It is a tricky business that requires even more due diligence than buying a dividend stock. Bonds are distressed for a reason and that is risk.

Entering a Bond Bear

As we leave the 35 year bond bull market and enter what I believe to be a 20 year bond bear market, high yield bonds are not as necessary even though they can be very rewarding (see Noble Energy Bond above.). 

I intend to ride the new cycle of increasing interest rates.  For average risk bonds I would like 5% for five years.  When bond prices decrease enough that I can get 5% for five years, I may change my mind and want more.  We will see.  

Since I believe interest rates are going up, I think there will also be high yield opportunities.  There is always some company that needs to pay just a little more to get financing.  It is our job as investors to find the right companies.

As I find bonds I like, I will write them up on this page and I will add them to the portfolio so you can measure how I have done.

M* MoneyMadam

Disclosure:  Long Cinemark Bond However since the price is above par, I am tempted to sell soon.  However, the next call price is $102.563 in April.  I may wait until that call date.

Tuesday, March 6, 2018

Added more Chevron now selling a Call

I have been an owner of Chevron for a long time.  Chevron, symbol CVX, is in my 2011, 2012, 2013,2014 and 2015 portfolios.  Then the price of oil crashed creating major chaos in the oil companies.  I added and then sold a call; my reasoning is presented below.

  • EPS have returned and now exceed dividends paid out
  • Dividend yield far exceeds 2 year U.S. Treasury
  • Dividend growth returns and exceeds inflation
  • Balance sheet is strong as measured by D/E ratio

Recently, when the over all market weakened I added some more CVX at $113.15.  This did not seem wise when CVX traded at $108.90 intraday on February 22, 2018.  I am reminded that you cannot pick a precise bottom.

CVX Fundamentals

Chevron's earnings have finally rebounded as the price of oil has improved and CVX has made some structural changes.  Finally E.P.S (earnings per share) are exceeding dividends paid out.

Fundamentally, Chevron's 4% yield provides much better retirement income for me than a 2 year U.S. Treasury.  Moreover, dividend growth has resumed.  CVX's most recent dividend increase from $1.08 to $1.12 is an increase of 3.7%.  I prefer 4% dividend growth but 3.7% beats current inflation.

Chevron's dividend history is interesting.  They don't suspend the dividend but when they need to husband cash, they will provide a minimal dividend increase.  When cash flow is more robust, Chevron shares it with its share holders.

Lastly, Chevron's D/E ratio is a mere .2855 which is quite low for a company that needs a lot of money to do their work.

Selling CVX Call

Today, Chevron is trading above $114 so I am finally in the money of this latest lot.  I sold a call today that varies a little from my routine.  I selected a June 15, 2018 expiration date.  This is about 10 days longer than I usually go out.  My reason is to get the May Dividend.  May's ex-dividend date has not yet been announced but it should be about May 17 and the May call expires May 18.  Therefore, I selected the June expiration.

See the table below for the trade details.

I intend to stay long CVX but it is not the only oil company I have in my portfolio so I don't want too much.  Overall, I am encouraged by a few articles in the Wall Street Journal today about the strength expected in the price of oil which will help CVX and my other oils.

If the call buyer does take my extra share, that is fine with me.  I love a greater than 12% gain in under 120 days.

M* MoneyMadam
Disclosure:  Long CVX with calls
Boost your yield on CVX to over four percent this year!

Friday, March 2, 2018

AMGN defies the trend

Amgen, symbol, AMGN has been in my portfolio for a while.  I most recently added in November of 2017.  I have sold calls on my position many times and today is another example of this strategy.

  • AMGN has history of EPS greater than Dividends paid out
  • D/E ratio is a bit high
  • Dividend on par with 10 year Treasury
  • Covered Call options enhance income

First, lets look at AMGN's fundamentals. 

On first blush AMGN would not pass my criteria test because EPS of $2.57 are much less than dividends paid out of $5.28.  However, this is an aberration.  AMGN took a big write-off in the 4th quarter of 2017.   Without that write-off AMGN has consistently produced earnings in excess of dividends paid out and this is one of the "moats" that I use to quell my nerves.

The table below is courtesy of

  Revenue / EPS Summary *  
 Fiscal Quarter 2017
(Fiscal Year)
(Fiscal Year)
(Fiscal Year)
   Revenue $5,464(m) $5,527(m) $5,033(m)
   EPS 2.79 (3/31/2017) 2.5 (3/31/2016) 2.11 (3/31/2015)
   Dividends 1.15 1 0.79
   Revenue $5,810(m) $5,688(m) $5,370(m)
   EPS 2.92 (6/30/2017) 2.47 (6/30/2016) 2.15 (6/30/2015)
   Dividends 1.15 1 0.79
   Revenue $5,773(m) $5,811(m) $5,723(m)
   EPS 2.75 (9/30/2017) 2.66 (9/30/2016) 2.44 (9/30/2015)
   Dividends 1.15 1 0.79
December  (FYE)      
   Revenue $5,802(m) $5,965(m) $5,536(m)
   EPS -5.77 (12/31/2017) 2.61 (12/31/2016) 2.36 (12/31/2015)
   Dividends 1.32 1.15 1
   Revenue $22,849(m) $22,991(m) $21,662(m)
   EPS 2.69 10.24 9.06
   Dividends 4.77 4.15 3.37
   Previous 3 Years
©2018, EDGAR®Online, a division of Donnelley Financial Solutions. EDGAR® is a federally registered trademark of the U.S. Securities and Exchange Commission. EDGAR Online is not affiliated with or approved by the U.S. Securities and Exchange Commission.

AMGN yields 2.8% which is pretty close to the 10 year U.S. Treasury.  I need more income than a 10 year treasury or I would buy the more safe treasury.  

AMGN carries a debt to equity ratio (D/E) of 1.158.  My rule for D/E ratio is less than one or within industry standard.  A good comparison is Gilead (GILD) which carries a D/E ratio of 1.395 making AMGN's D/E respectable.   MSN Money calculates industry D/E average of .90 making AMGN's D/E ratio just a bit high.  If AMGN has a weakness it is this slightly elevated D/E ratio.

Two catalysts make me want to hold onto AMGN.   

  • Annual Dividend raises:  over 20% since 2015
  • Covered Call options:  add 1.13% to yield.

Today AMGN is one a few stocks in my personal portfolios that is up.  Moreover, a very nice call is available.  See the details in the table presented below.

I am not adding to AMGN at this time, I am however, working my portfolio for income on a stock that I feel has a good "moat" of safety.  The call expiration is only 49 days away.  While a call does limit upside potential, it also can limit my ability to unload AMGN should something go terribly wrong.  This is why I chose an expiration date less than 2 months.  If you go out further, you could capture the dividend in May, however, AMGN did not have any May calls available and I did not want to go out as far as June.

M* MoneyMadam

Thursday, March 1, 2018

Using Moats to quell my nerves

When I logged in today the DJI was up about 80 points.   I looked back to see what a ride while I was away and it appears today is no different.   Up and down in the same day.   Down 400 right now.

If you don't listen to the news, everything seems fine.  Once you log in and start paying attention, things don't look so good.

I will be writing up my research on various holdings as I determine if I have enough of a moat to weather a major down turn and yet enough exposure to benefit from an improving economy with head winds.

Stay tuned.

M* MoneyMadam

Tuesday, February 20, 2018


I will be on vacation through the end of the month.

M* MoneyMadam

Sunday, February 11, 2018

Reversal to the Mean - Stick with Dividends - A Message from TheMoneyMadam

If you are trying to make sense of this market, consider that it is different this time. 

  • Internet and technology stocks with no earnings only hyped up hopes fueled the "Dot Com" bust in 2000
  • Major credit market disruptions caused the real estate and stock market crash in 2008
  • Over valued dividend stocks are fueling the market fluctuations of 2018 as robots that are programmed to preempt risk are trading stocks rather than rational income investors

Let's look at these three major market disruptions:

In 1999 the dot com bubble helped a lot of investor who took profit and ruined many who did not.  More than one of my clients said "I want to get into this market."  Some did get into the high flying dot com stocks but their real money was in income producing stocks, bonds (they were paying over 7% back then) and real estate.  The point is the dot com debacle did not bring down everything.  It was isolated and only those who failed to follow the investing rules of thumb were devastated.  Dividend growth investing still worked back then.

I remember October 2007 vividly.  It seemed the only asset class that didn't get hurt was real estate.  No more than a few minutes after that thought crossed my mind, I got a call from the general partner who ran a private placement investment of multi family apartment buildings in Texas.  The message:  those properties have failed and were going into bankruptcy.   None of my clients was in these investments, I was the client in this one.

My husband was retired and I was still working but we lost about 25% of our investment income when those properties failed.

Not long after that we watched Lehman Brothers fail and saw the value of our portfolio cascade down with the credit crises.   Even money market funds were in trouble. We lost about 30% of the value of the stocks and bonds in our retirement portfolio but we did not lose any additional retirement income.

This second major disruption affected asset values, but dividend growth stocks survived, continued to pay their dividends and some even continued to raise dividends.  We were not able to save as much money with the loss of the apartment income.   It took a lot of patient counseling to get investors to stick with their dividend growth strategies

The market volatility we are experiencing right now has totally different dynamics than any of the previous occurrences noted above.  While we have over valued stocks in some areas, we are not looking at the kind of hyped up value from dot coms and our credit markets are solid.

Today, we have reversal to the mean. 

You cannot fight the law of nature.  Too much money chasing too few dividend, dividend growth, and generally solid companies and it was bound to correct.

Interest rates are not yet competitive enough for me to make a change back to bonds.  They're just high enough that I can pay closer attention to cash management but I am not pulling my money out of dividend growth stocks to invest in bonds.

Yet, it is this threat that makes the programmers enact algorithms to protect against this interest rate risk.  Without a doubt, the 30 year bond bull market is finished.  We will be facing inflation and interest rate risks.  These will affect equity asset prices.

Enter the algorithmic traders, and you have significant volatility.  The "bots" may be the vehicle for volatility but regression to the mean is the fundamental reason that over priced, quality stocks are suffering.

I am sticking with my program.  I use covered calls to force me to sell at a profit.  It does restrict upside potential but it also enforces portfolio rebalancing.  When I have a quality stock called away, I certainly am not going to put those funds in a stock like Caterpillar (CAT) with a P/E (price earnings ratio) of more than 100.

Equally, when I see a stock that I fundamentally like and it takes a hit during these times of volatility, I add.  I make a list of all the stocks I own that pay 4% or more and when they correct I add.

Stock prices move quickly and I do not expect this to stop soon.  We are back to an extended period of volatility.  You have two choices, don't look, or keep your wish list active, put in limit orders, never market orders, and pick up some bargains.

This will not be the last time you are concerned about the market, but it does not need to ruin you.  We are just reverting to the mean.  Each stock is different.  Do your research, decide what price you want to use to add, and be brave.

M* MoneyMadam

P.S.  One half of those Texas properties did emerge from bankruptcy and paid back our principle plus some of the principle we lost in the half did totally fail.    

Monday, February 5, 2018

PKG Packaging Corp a new name for 2018

Company Description (as filed with the SEC)

Packaging Corporation of America ("we," "us," "our," "PCA," or the "Company") is the fourth largest producer of containerboard products and the third largest producer of uncoated freesheet in the United States, based on production capacity.

How much packaging stuff do you throw away every day?  

I owned this stock quite a while ago and I am going to revisit it in this post.

  • Free Cash Flow is good.
  • PKG should growth as the online orders go up
  • Dividend Machine fundamentals are very good
  • D/E ratio is a bit high 

Grow with the online trend

How much packaging material do you recycle or throw away every day?  It just makes sense that online purchases will continue to grow and we all know that means more packing materials  I like that kind of catalyst.  Take a look at free cash flow and you can see it for yourself.

PKG Free Cash Flow Chart

Dividend Machine Fundamentals

I still have to use my basic screening criteria when I am adding a new stock to a portfolio.  Although I owned PKG between November 2013 and January 2015, PKG never made it into one of my model portfolios.  This is about to change and that is because this stock has good fundamentals.

I require a solid dividend yield, earnings per share that are greater than the dividend, dividend growth, and a good balance sheet.  Take a look at PKG from that perspective.

In the past I required a minimal dividend yield of at least 2.75% and during some years 3.5%.   This is why PKG did not make the grade in previous years.  In 2018 I am writing about investments I make and have relaxed the dividend yield criteria.  But I must say this 2.15% yield is a minimum.  Only because of this market correction is PKG's dividend yield adequate for me.

Debt to Equity Ratio potential headwinds

One weakness in PKG's fundamentals is a debt to equity ratio that is greater than 1.  During these turbulent times, we don't want to add a stock with a dangerous balance sheet.  I am less concerned about the actual amount of debt that PKG has than I am about the headwinds of rising interest rates.

As interest rates rise, PKG may incur higher borrowing costs which could negatively effect their cash available for dividends.  On the positive side, PKG earns over $7 per share and pays out only $2.50 of that in dividends.  For a conservative income investor, I like that payout ratio.


I am interested in PKG at $120 or under.   I think we will have some interesting opportunities to
buy quality stocks over the next few weeks.  One of the stocks I will go after tomorrow is PKG.  I would love to get it at $115.  I prefer to pay no more than $117 and would back off completely if $120 is the ask.

M* MoneyMadam

Disclosure:  No position but hope to add.

I am putting in a limit order of $106 which is a dividend yield of over 2.3%.  Afterhours bid is $107 and change.

Previous Posts on PKG