Showing posts with label 2016 Portfolio. Show all posts
Showing posts with label 2016 Portfolio. Show all posts

Tuesday, September 13, 2016

Which tech stock to add MSFT, QCOM, or AAPL?

The market has turned volatile and that means the VIX is up.  When the VIX is up, covered calls are more plentiful.   In this post I look at three stocks in the technology sector:  Microsoft (MSFT), Qualcomm (QCOM) and Apple (AAPL) that are under consideration as income stocks.   During times of volatility, opportunities are created. 

While each of these stocks is considered a technology stock, they are quite difference in many ways.  Without analyzing the similarities or differences in focus, strategy, or execution, I will apply my screening criteria to each one to decide if I should add to my position in the case of MSFT and AAPL and if I should again take a position in QCOM. 


Target Dividend Yield = 2.75%

To remind you, I write about income stocks.  I am looking for solid companies with a strong history of delivering ever increasing income through dividends and covered calls.  My target dividend yield is 2.75% but I will compromise if there is a catalyst such as hefty call premiums or significant revenue growth that could suggest big capital gains down the road.

Dividend Growth = 4% minimum

The most useless data out there is inflation data.  If you believe the so called experts, some suggest deflation and some suggest a hint of inflation.  I look back at my expenses 10 years ago and 20 years ago and I can tell you that my expenses doubled about every 20 years.   Therefore,  in 20 years I must plan to produce twice the income I get now to cover my expenses.   Using a 4% dividend growth rate will get that done.

Covered Calls = 10% total return if the call is exercised

When I sell calls on my stocks to create income, I risk losing that stock to the call buyer and it happens quite often.  I would say more often than the conventional wisdom of 10% of the time.  Should my stock be called away this means I lose the chance for future capital gain in that holding.  Therefore, I must be sure that my total return makes it worth while.

My target total return on a stock that is called away is 10%.  I rarely sell a call with an expiration longer than 90 days and I almost always pick an expiration date that is far enough out that I receive the dividend (unless the stock is called away early.)  I also prefer the call premium to be equal to or greater than 1% of my basis.


The only way I will achieve my income goals using dividend stocks is if those stocks continue to grow.  My crystal ball is in the shop and I must, therefore, use historical data to help me predict future income streams.  Revenues and Earnings per share (EPS) create the cash needed to deliver ever increasing dividends.

Target Revenue Growth = 4% minimum
EPS must exceed dividend paid out

Safety for me is not measured by stock price volatility.  I am interested in total return but I have been in this business long enough to know that my stocks could tank like they did in 2009 but as long as they continue to pay the dividend, I will not suffer greatly.  Moreover, I should not have to worry about my stock going "belly up" if I choose a stock with a strong balance sheet.

Debt to equity ratio (D/E) of 1 or less or = industry standard

I use D/E ratio but I if you are adept at reading a balance sheet, you may use another criteria to make you feel comfortable with a company's balance sheet.

The table below presents this data on all three stocks.

The choice to initiate a position or add to a position is solely yours.  I will be adding Qualcomm to the 2016 Model Portfolio as it meets all my criteria including nearly a 1% call premium.  And I will add to my AAPL position on a pull back because the call premium is very robust and makes up for the low dividend yield.  Finally, I will hold MSFT for now.

Consider these three stocks for the income producing portion of your portfolio.


Disclosure:  Long AAPL with calls, Long MSFT, with calls, expect to initiate a position in QCOM shortly.

Read more »

Saturday, September 10, 2016

2016 Portfolio

My 2016 Portfolio is presented below.  The values are after the market's nearly 400 point decline on Friday September 9.   Notice that the portfolio still has a capital gain of 4.59%.  Total return which includes capital gain plus dividend and covered call income is 7.23%.   Dividends and call premiums represent nearly 40% of the total return.   Income investing rocks!

M* MoneyMadam

Disclosure:  Long all positions
Read more »