This is a fast moving situation this morning.   I love it when a company has improved fundamentals but guides lower and gets slammed in the market.






Within the last few minutes I was able to buy Qualcomm (QCOM) at just under $67.  Then I sold January $72.50 calls on that position.    The tables below show the fundamentals of QCOM as a dividend company and the gain from the covered calls.

Qualcomm (QCOM) Dividend Fundamentals





QCOM is not a dividend machine because the yield is under three percent.   However, I have been able to produce more than four percent yields using a combination of dividends and covered call premiums.   Add to that the capital gain if the call is exercised and you have a winner.    Now we just need history to repeat itself.









Qualcomm (QCOM) Covered Call Yields





Good dividend and income investing ... The Money Madam

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Dividends & Income - How to Manage Microchip Technology - My Favorite Trade Today

Consider a smaller cap dividend company like Microchip Technology (MCHP) to provide diversification by company size and to juice your income.




Everybody is writing about Intel (INTC) and Qualcomm (QCOM) and IBM.  They suffer over the earnings, the slow growth, the future and of course the dividends.


These very large companies are good stocks to own but every income investor needs to be diversified by capitalization as well as industry.   The results of my work using my dividend machine strategy suggests that you can create a well diversified portfolio of dividend stocks using my four criteria and moreover, the smaller cap. companies perform quite well.

My Favorite Trade Today:

Image via CrunchBase

Today's I sold another call on Microchip Technology (MCHP.)  This was my favorite trade today. 


I have profiled MCHP as a dividend machine three times already.   The cost basis each time was $33.55 on November 14, 2010 (a 2011 dividend machine;)  $37.30 on February 8, 2012 (a 2012 dividend machine;) and $33.94 on February 7, 2013 (a 2013 dividend machine.)  

Clearly, MCHP has been up and down and that volatility has provided for very nice covered call income while I cash those ever increasing dividends.


MCHP Covered Call Analysis:


For the purpose of analysis, I will use the high basis of $37.30.    Today I sold a January $42 call for $1.00.    MCHP's all time high is $41.78.   I doubt that it will break out above $42 but someone else does and that is why they paid me $1.00 per share of additional income.   If I keep MCHP through to expiration, I will also receive their quarterly dividend in December.   See the table below to learn about the call  yield and the total gain opportunities.






Folks, this is how you work your dividend machines to maximize profit.


The Money Madam

Posts Related to MCHP as a Dividend Machine
2013-dividend.html

November 14, 2010
http://www.themoneymadam.com/2010/11/microchip-technology-dividend-machine.html

February 8, 2012
http://www.themoneymadam.com/2012/02/microchip-technology-dividend-machine.html

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Dividends & Income on spin off companies

Two dividend machines from 2011 initiated spin off companies that provide dividend and income investors with covered call income opportunities.  


Two examples, Abbott Laboratories spin off of AbbVie, and Conoco Phillips spin off of Phillips 66, are discussed below.



ABBV


Abbott Laboratories, symbol ABT, was one of the first stocks I profiled as a dividend machine in 2011.    ABT spun off the company AbbVie, symbol ABBV.   While ABBV pays a nice 3.2% dividend, I find opportunity to supplement my income with covered calls.


This tables illustrates the value of a November $45 call on ABBV using today's intra-day price basis of $43.57.   My broker calculates the basis as $29.50 from the spin off.


The point of selling an ABBV call is not for a capital gain.   Although that potential for capital gain is nice,  I would actually like to keep ABBV.  The point of this covered call is to boost income and the call premium of $1.20 for an immediate yield of 2.75% is compelling.


PSX



Similarly, Conoco Phillips, symbol, COP, initiated a spin off of Phillips 66, symbol PSX.   PSX pays a 2.22% dividend yield.   Again, a covered call provides an opportunity to boost income.

This table uses today's intra-day price of $55.50.  My broker calculates the basis from the spin off as $64.17.


It is significant to note that the strike price of $65.00 provides a return of my capital.   I would not sell the call if it resulted in a capital loss.

I would stick with the 2.22% yield until either the stock price comes back or I can sell an "in the money call" .. a call with a strike price equal to or greater than my basis.


These are two calls for dividend and income investors to consider for the income producing portion of their portfolios.


The Money Madam

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Darden Restaurants nearly Seven Percent for your retirement income

Today, I am adding to Darden Restaurants, symbol DRI to make 6.93% of income.  

PROCEEDS FROM KMB

I am using proceeds from Kimberly Clark, symbol KMB, to add to my position in DRI.   I have loved owning KMB but my theory, as you know, is there is always another stock to buy and I really want more than just three percent income.   Therefore, I cashed in my gains by setting a stop on KMB stock at $100.  The stock price hit the stop price earlier this week so I have profit to invest.

SELECT A DIVIDEND MACHINE FOR SAFETY

I am leery of this stock market so I selected a dividend machine that currently pays 3.79%.   My original buy on DRI was about $45.00/share.  Today I bought at $52.66 and immediately sold a call for a premium of $1.65.  

If I sell DRI at the strike price of $55.00, I will gain 7.58%.   No matter what, I get to keep the $1.65 per share from selling the call and that is a yield of 3.13%.   If I hold DRI for one year and the stock price goes nowhere, my income will be a mighty $1.65 per share from the call premium plus $2.00 per share from the dividend.  

EARN 6.93% INCOME FROM DRI

DIVIDEND STOCK
Darden	DRI
Call Option	Oct. 55
Cost Basis	$    52.66
Strike Price	$    55.00
Call Premium	$       1.65
Premium Yld	3.13%
Total Return	7.58%

Where else can I get a 6.93% yield on a stock I consider safe. See the covered call table below for details on the covered call income.

Add the dividend to the call income and you get nearly seven percent income.

TheMoneyMadam

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