Tuesday, May 3, 2022

SImplest call today MS - inflation hedge

Underlying Security Symbol: MS


Morgan Stanley hit a high of $109.73 within the last year and is now trading in the mid $80's.  I need to put some cash to work and I made the simplest of moves today.

Picked a stock with a dividend yield that is higher than the 2 year U.S. treasury.  With a 3.32% yield, MS pays a competitive dividend.  MS has emerged from the 2008 financial crisis in good shape.  The dividend is growing and they are financially stable and should be able to continue to raise the dividend.  

A growing dividend is very important to income investors.  Trust me, the cost of everything doubles every 20 years.  If you're just retiring at say 65, you are most likely going to live a robust additional 20 - 30 years.   Fixed income will not cut it.  You must grow your income.  Keeping a stable of quality dividend yielding stocks that grow the dividend will be your best hedge to handle this natural inflation.

Because I think MS is a buy in the mid $80's, and because I like the dividend and the dividend growth potential, I will be adding more of it to my stable of stocks.  Therefore, I bought two hundred shares.  I will keep 100 shares and I sold a call on the other lot.  This strategy allows me to milk this position for more income while still improving my basic portfolio.

Here is the call I sold today.











Call premiums are very volatile.  You never know if you can get what is in this post.  Yet, MS is not that volatile and I may repeat this trade in the next few weeks should MS go down more and test it's 52 week low of $80.  I will add two lots and if the call premium plus capital gain potential of a call yields more than 10%, then I will sell a call on one lot.

This is the simplest of calls.  We're not trying to get in or out quickly.  We're not riding a wave with a low dividend yielder; think Alcoa.  This is the most basic example of good income investing.  Create income and create a source of income that will grow in the future.


MM MoneyMadam 

Data from Schwab.com and Marketxls

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