Wednesday, January 29, 2020

MMM immediate 1.68% yield + the quarterly dividend

Bottom fishing or a good investment?  MMM suffered mightily when the market swooned this week.  If you are interested in starting a position and want to get more than just the dividend, consider this call.

I am going to initiate a position today.  Keeping one half of the position allows me to add an over 3% dividend yield with a recent dividend increase of over 5%.   Those two characteristics alone make the trade worthy.

On the other half of my position I will sell the call outlined below.  Expiration is 80 days away and we will just have to see what happens.  Total return on these shares if they are called away (assigned) is less than the usual 10% goal.   However, as an income investor I really like adding to the cash flow from this investment from the call premium.  That income alone yields 1.68%.  The quarterly dividend and call premium together yield 2.56%.  The dividend is due about Feb. 15, 2020 which means you will receive money you can spend within 3 weeks.

Stock Price on Open Call Expiration 
MMM $163.50 4/17/2020
Cost Basis:   1/29/2020 $163.50
Strike Price: $170.00
Call Premium:  $2.75
Dividend  2/15/2020 $1.440
Call Yield on Basis 1.68%
Call + Dividend Yield on Basis 2.56%
$ Gain if Assigned $10.69
Max Return  if Assigned 6.54%

What if you are stuck with MMM after the call expires?  Can you live with a stock with these fundamentals?

MMM $163.66
E.P.S. $8.56
Dividend $5.76
Yield 3.52%
3 Yr Div Growth 9.91%
D/E Ratio 1.89

Consider MMM for your income growth portfolio.

M* MoneyMadam
Long MMM with calls