Showing posts with label MCHP. Show all posts
Showing posts with label MCHP. Show all posts

Sunday, August 14, 2016

MCHP raises dividend

Microchip Technology declares $0.36 dividend $MCHP
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Tuesday, May 24, 2016

MSFT, MCHP, CAT More calls for more income!

Readers of this blog know I use covered calls extensively to boost my income.  What is a girl to do with interest rates so low and with dividend stocks being priced high?  I still think the best income investing during these times is to use high quality dividend stocks with covered call potential.


Among the many stocks on which I tried to sell calls today are these three:  Caterpillar, Microchip Technology and Microsoft.  I have owned them all for a long time.  As a matter of fact, Microchip (MCHP) was the very first Dividend Machine I wrote about in late 2010.

English: Wheel loader (front end loader) made ...
English: Wheel loader (front end loader) made by the Caterpillar company. (Photo credit: Wikipedia)
Caterpillar is so very weak.  I added a little last October.  I am working those shares for income with calls.  I am reinvesting the dividend on my other shares, with a higher basis, as it is too late to sell them and the yield of 4.4% is good.   I don't want to add anymore CAT because their EPS are less than the dividend ($.46 versus $.77) and because their revenues have collapsed ($47,011m in 2015 versus $65.875m in 2012.) 

Here is the CAT call I sold today:

Microchip Technology on trade fair Embedded Wo...
Microchip Technology on trade fair Embedded World a few minutes before opening the fair, Nuremberg, Germany 2008 (Photo credit: Wikipedia)
Microchip Technology, in an effort to grow, has acquired other companies and used debt to do it.  A 1.13 D/E ratio is too high for me.  Intel, for instance, has almost no debt.  MCHP is not so bad a company that I need to sell it.  Indeed, they are working through this acquisition.  However, their dividend growth rate is so meager I will sell calls with strike prices close to the current trading price hoping the call buyer will take my shares and I can move into a higher yielding stock.

Here is the MCHP call I sold today:

Microsoft is a good dividend stock. MSFT actually meets all my fundamentals.  However, it is expensive.  MSFT sports a P/E (price to earnings ratio) of 40.  Note that AAPL has a P/E of only 10.85. 

WELCOME TO Microsoft®
WELCOME TO Microsoft® (Photo credit: Wikipedia)
MSFT just barely meets my dividend yield criteria of 2.75%.  At today's price of $51.40 ish their yield is 2.88%.  I need more than 2.88 so I am supplementing my income with calls.

Here is the MSFT call I sold today:

This post is another example of how to your dividend stocks to create more income.


Disclosure:  Long all with calls

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Thursday, April 21, 2016

Market timing with covered calls

Microchip Technology on trade fair Embedded Wo...
Microchip Technology on trade fair Embedded World a few minutes before opening the fair, Nuremberg, Germany 2008 (Photo credit: Wikipedia)

One of the many ways to use covered calls to manage your stocks is to use them to get rid of a stock.  


You should have a good reason to get rid of a stock because when you use covered calls with the idea of being assigned (the call buyer exercises the option and buys your shares) it happens a lot.  You do not want to use this strategy on stocks you will be sorry to lose.

This technique is really a timing mechanism.  I think the stock market seems a little expensive based on P/E ratio.  Times are uncertain locally and globally.  I lighten up on stocks that no longer meet my dividend stock selection criteria with emphasis on stocks that are over valued by P/E (price earnings) ratio.   Microchip Technology, MCHP is the stock I am writing about today.

Dividend Machine Fundamentals to decide which stock to sell.

I started using only four criteria to pick a Dividend stock and in 2016 I added two criteria.   My first four metrics were (1) EPS greater than dividends paid out (2) dividend yield of 3% (upped to 3.5% in 2014), dividend growth rate year over year (minimal 5 year growth rate upped to 4% in 2014), and D/E or debt to equity ratio of 1 or less or equal to industry standards.

In 2016 I lowered the dividend yield minimum to 2.75% but added two criteria (1) revenue growth over the past 3 years of at least 4% and (2) availability of covered call options that would yield at least 1% on each contract and a minimum of 8% capital gain over basis should the call be assigned.  In other words, the strike price has to be 8% greater than my basis.

Microchip Technology Dividend Stock Fundamentals

Microchip Technology (MCHP), my very first Dividend Machine, is still in my personal portfolio and I have been working the calls and receiving the dividend.  Now I am working the calls to get rid of Microchip.

Microchip violates two of my key criteria: it has a D/E ratio of 1.38 which is too high and the dividend growth rate is to low.   Moreover, I think the market may be overvalued and I think MCHP is ripe for selling because the P/E ratio is 30.38.   

MCHP's stock price appreciation has been quite good since I initiated a position in November of 2010.  My first buy was at $33.55.  MCHP trades to day about $49.50 for quite a nice gain.  My personal basis is $34.93.   The dividend yield is 2.95% which isn't bad but the dividend growth has been a tepid .869% per year which is another reason to dump it.

In an effort to grow, MCHP, bought another company, Atmel and is working through the process of making money from that acquisition.  I don't use that kind of news to make my decisions about dividend stocks.  I just don't know enough about it.  I stick to my fundamentals.

However, for those knowledgeable about the acquisition, you may be willing to wait for the acquisition to pay off.  Analysts think that indeed MCHP will grow and project a forward P/E around 18.  Due to the debt and slow dividend growth, I am still wanting to get rid of MCHP

Getting rid of MCHP with Covered Call Options

Now take a look at the list of calls that I have used to boost my income and more recently to try to get rid of MCHP.

As time progressed and I realized that that their debt was increasing and the dividend was not, I wanted to get rid of it so I sold calls very close to the current trading price.  So far, I have had no takers on my last 200 shares but I will continue to try.  You will see that I just sold May 20, 2016 calls for $.95 a contract.  Notice that the range of call premiums was $.55 to $3.80.

Actual MCHP Covered Call Experience

Covered call premiums on the 300 hundred shares in my Dividend Machine Portfolios have been good and all three hundred shares would have been assigned.  I bought at the same time I wrote about MCHP.  I personally bought 500 shares.  300 of my shares were assigned as they would have been in the model portfolios and I am left with 200 shares.

My basis on my remaining 200 shares is  $6,986 or $34.93 per share.  My basis on all 500 shares is $17,465.   My income from MCHP covered calls so far is $2,365.  Covered calls added  13.54% to my income.   That does not include dividends.

Strategy Keys

The key to this strategy is to select a strike price very close to the selling price and with an expiration date no greater than 30 days out.  You don't want to wait around while the stock price deteriorates to meet the deteriorating dividend fundamentals.   I sold my most recent call on April 19 with an expiration date of May 20. 

You want a really good premium.   If the call expiration date is before the next ex-dividend date, you want the premium to be even richer.   I like a minimum of 1 % plus the amount the quarter dividend that I may lose out on.  The most recent call premium was $.95 or 2.7% on my basis and 1.9% on today's price.

This is an example of how to use covered calls to time the market and get out of a stock that for one or more reasons seems over valued or under performing as a dividend machine.

M* TheMoneyMadam 
Disclosure:  Long MCHP with calls

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Sunday, October 12, 2014

What to do with Microchip Technology MCHP?

One of my earliest Dividend machines took a terrible tumble on Friday.   The tumble was deserved. Although I do not use P/E (price earnings) ratios to determine if a stock qualifies as a Dividend Machine, P/E is important when you try to decide what to do with a holding that crashes like MCHP did on Friday.

Microchip's P/E soared over the past few years and this was during a time when MCHP was absorbing an acquisition.  I was tempted to sell it because the yield on this inflated stock price was well below what I could get from another stock.    On the other hand, my cost basis of $33.69 is well below the current price.

During these times when traders buy stocks that are rumored to be have a lot of growth, MCHP had good rumors and a high stock price and a high P/E.    Covered calls are the obvious strategy to improve income but you can only sell a call when someone else wants to buy it from you.   For quite a while, MCHP had no calls.   Lately calls have been better and I have one half of my position on call (October $50.)  That means I could not sell those shares if I wanted to until the calls expire.

Does a lower P/E mean I should buy?

I will likely hold onto the other shares as this stock is still a strong income producer.  Unless covered call income is compelling, which to me is a call premium yield of at least 2% or about $.80 per contract, I will not add to my position.

Even if the stock price erodes enough that MCHP's dividend yield is more than 3.5% and the P/E is less, I will not add.  My reason is I need dividend growth and while MCHP has consistently increased the dividend, the increases have been meager.     But then I get the capital gain if the call buyer takes part of my position and that makes up for the meager dividend increases.   But I really doubt that my stock will be called away.   Therefore, I will look for new calls and hold.

A stock with a 3.1% dividend yield, low debt, a history of increasing dividends, and earnings that exceed the dividend payment, and has occaisional covered call income, is not a bad stock to hold.

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Tuesday, September 3, 2013

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 representing Microchip Technologies as d...
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

November 14, 2010

February 8, 2012

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Friday, February 8, 2013


Microchip Technology, symbol MCHP is company very similar to Intel.  Both have qualified as dividend machines in 2011 and 2012 and now again in 2013.  Their dividend fundamentals are similar.   Often times, I own more than one company in a given space in order to diversify my holdings within an industry.


Microchip, like Intel, produces computer chips.  Both companies are mature.  Investors do not look to either company for rapid growth.   Their stock prices are stuck in a trading range and some analysts consider them dead money.   Yet each company has been a money machine for income investors.

Microchip Technology
Price when profiled
Last 4 Qtrs Earnings
Last 4 Qtrs Dividends
Current Qtr Dividend
Annualized Div Yield
No. Years Div Increase
Since 2002
Debt/Equity ratio

Microchip is a much smaller company than Intel and the stock price is a bit more volatile.  Over
the past year, MCHP bought another company in order to diversify the product line.  The acquisition was viewed with great skepticism and the stock price suffered.   In 2011 MCHP traded around $33 per share when I profiled it.  Early in 2012 MCHP’s stock traded around $37 per share when I profiled it.  Later in 2012 MCHP’s stock price slipped back to $33 per share.

Today, MCHP announced their most resent earnings and they beat estimates on both the top line and the bottom line.   Just as they have in the past, MCHP rewarded it shareholders by again increasing the dividend.

The table above presents MCHP’s dividend fundamentals.  With a yield of 4.16%, MCHP is a good buy.   They have a strong balance sheet and have shown they know how to use their cash.  In the past, MCHP has also offered covered call opportunities.  With the good earnings news, tomorrow may be a good time to look for covered calls.


MCHP, as a small cap. company, provides a little diversification in the computer chip industry.  I like to own more than one stock in industries as big as this.   Intel is a large cap stock.  

Consider owning both of these companies in the income producing portion of your investment portfolio.

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