Showing posts with label 2018 Dividend Stock. Show all posts
Showing posts with label 2018 Dividend Stock. Show all posts

Monday, November 26, 2018

Unilever Covered Call adds 3% to yield

Income investors know when the market is up, look for calls on your dividend stocks.  You can click on my Call Options page to learn more about call options.

Unilever for dividend and call income


Unilever, symbol UL, like Proctor and Gamble sells branded consumer goods.  All stocks in the space suffered but today UL is above my cost basis.   The point of this post is to illustrate how you can take a stock like UL that pays a 3.39% and increase your income by another 3%.

The way it works is to sell to another person the right to buy your UL shares at a strike price greater than your basis.  The call buyer pays you a non refundable premium for that option.

When you select an expiration date after the next ex-dividend date, it is highly likely you will receive both the dividend and the call premium as income.  This is not guaranteed.  If UL stock price soars, the call buyer might buy it from you before the next ex-dividend date.  You still get the nice gain and the call premium but you could lose the stock and the next dividend.

Calls Increase Income from your Nest Egg


I strive for an average income from my dividend stocks of 5%.   You could put all your nest egg in At&t (symbol T) or Ford (symbol F) and get more than 5%.  But, most of us need more safety and more diversification than just these two stocks.  I own both T and F.   I also own UL and this stock provides some international diversification and call option opportunities.

Take a look at the call I sold today.






I want to emphasize the over 14% return is only possible if the call buyer actually executes their option and buys your shares at $55.00.    Calls expire 90% of the time.  Therefore, as an income investor, you must be prepared to keep your UL shares even if they tank during the time you cannot sell them because of the option contract.   You will still receive your dividends from UL but you could be underwater on your basis. 

Income investors need to concentrate on the additional yield they receive from selling calls with a strike price high enough that it is most likely the call will expire useless.  Even when the call expires useless, you keep the call income and the dividend income.   In the UL example, your total income over a year would be the dividends plus the income from this call premium.   Let's use UL's  last four dividend payments plus the call premium and you get $3.306 per share for an annual yield of 6.62% on my basis.

If I lose UL, there is always another 3.39% yielding stock to buy.

M* MoneyMadam

Long T, F, UL with calls
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Thursday, January 11, 2018

First Dividend Stock for 2018 XOM

Good New Year everyone.  I can report to you that I bought my first Dividend Stock for 2018 and it is Exxon, symbol XOM.








  • Low Debt to Equity Ratio (D/E) of a dividend stock is downside risk protection for the income investor 
  • Emerging from EPS weakness when dividends were maintained or even increased is another measure of strength
  • Long term dividend growth is important in a mature stock 
  • Adjusting your strategy to the new normal can help participate in gains but good fundamentals limit risk


I am changing my approach a bit this year.  I built seven pretty successful portfolios using my Dividend Machine Criteria; my 2011 portfolio is up over 130% or 18% per year.   I still want to make sure I am buying solid stocks but I am not going to restrict my buys quite as much.  I am going to deviate from my strategy to adapt to the new normal.

We need to pick stocks for income but limit our risk by using solid fundamental analysis yet this year I want to look at participating in gains by adding to those stocks I trust to deliver income when the new normal breaks down and becomes the same old boom and bust cycle of stocks.

I think we need to be very facile in our investing for 2018.  Our job as income investors is much easier than the investor who needs to create the wealth off of which they live.  We just need to invest our savings in instruments that deliver income and make sure those investments are safe.

The value of these income investments can vary but as long as they continue to deliver income when times are not so good and increase our income when times are good, we can stick with these stocks.

When I look at a stocks, I  must have income in the form of dividends and I really like covered calls where possible.

RISK CONTROL WITH D/E RATIO AND EPS


Debt to equity ratio (D/E) ratio is one of the most available and easiest measures of a company's fundamentals. I will not compromise on this metric.

Readers know I used earnings per share being great than dividend pay out as another measure of safety.  This year I am not going to be so severe a critic of EPS.  If the earnings per share of a stock only barely cover the dividend I won't immediately eliminate it.

For instance in the case of XOM, my first Dividend stock of 2018, this stock continued to pay dividends during some difficult times.   When oil prices collapsed, earnings were not covering the dividend.  Because of the strength of the balance sheet, XOM was able to continue to pay us dividends.  Now earnings are turning around and are equal to dividends paid out.

We cannot be sure that oil prices will stay strong.  However, I am hoping that during the bad times, Exxon used it talent to develop technologies that will improve performance.  They have diversified to include multiple energy sources.  I believe they are a solid company and will maintain and improve the ratio of dividends paid/earnings.

Exxon XOM DIVIDEND FUNDAMENTALS


I have summarized the fundamentals I track on my dividend stocks.  I bought XOM on January 3 at $86.78 right about where it is today (1/10/2018.)  The table below summarizes the metrics I track on my dividend stocks and provides the detail for XOM.

         
  Exxon Mobil Corporation   
  XOM 1/3/2018 $86.78  
         
  D/E Ratio 0.14    
  E.P.S   $3.07  
  Dividend   $0.31  
         
  Dividend 3yr Growth 3.86%  
         


XOM would not have been in my previous portfolios because their revenue growth is negative.  This is mostly due to the price of oil.  However, times have changed and XOM has a better diversified revenue base and oil prices have improved.  In fact in their most recent quarter (9/30/2017) revenue grew by 5.9%.

UPSIDE POTENTIAL IS DIVIDEND GROWTH and STOCK PRICE


Based on XOM's current dividend stock fundaments, I think the dividend will be safe when the next bust cycle confronts us.  Stock price may go down if markets suffer a major disruption but XOM will stay in business and it is highly likely they will continue to pay their dividend.

Based on improving management fundamentals, and the sheer size of XOM operations, they have the potential for stock price gains.  With a price/earnings (P/E) ratio of only 22 as compared with Chevron, symbol CVX, of 30, Exxon is going into my portfolio.


M* MoneyMadam

Disclosure:  Long XOM

2011 Portfolio up over 130% or 18.% per year



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