Thursday, July 2, 2015

FCX an interesting call

FCX provides an interesting opportunity to make a quick 2.29% in less than 60 days.  Buy FCX today at $18.38 and sell an August $20 call for $.42.   Add in the dividend of $.0165 and bingo you made 2.29%.

Of course, two other factors must be considered.  FCX's price could deteriorate and you might suffer a loss.   The other outcome is the call buyer takes your stock.   This would be good as you could bank a total return of nearly 12% in 60 days.   See the table below.


Disclosure:  Long FCX with calls
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Monday, June 29, 2015

QCOM at $59 Could Happen

I write about Qualcomm a lot because it has been such a good income stock that I have to share that kind of idea.

I buy my stocks using my four basic criteria but I allow myself leeway when I find a stock with special characteristics.   Qualcomm, symbol QCOM, is one of those special stocks.  I barely know silicon from silicone but I know dividends, growth and volatility.  When you can find a stock with a great balance sheet like Qualcomm's D/E (debt to equity ratio) of .029, that pays a good dividend while you wait for growth, that further fills your coffers with call premium money as it grows, you have made a very good pick.

Why I like QCOM

Currently, I am a touch underwater on my most recent buys of QCOM.   I sold calls and they have expired and so I sit with QCOM.   While I sit, the dividend just keeps going up.    If you owned it in May of 2010 your quarterly dividend would have been $.19.  Five years later your quarterly dividend is $48.   That makes QCOM's average annual five year dividend appreciation at 30%.  

I want $59

On a day like today with the market down 350 points, I look for opportunities.   I would like to add to my position at $59.    I am confident that even if it breaks down below $59, it will recover and I get a tasty 3.25% dividend while I wait.

In 2012 QCOM was quite volatile.  Three times it traded around $59; in February, again in August, and finally in November.   I would like to see a repeat of that volatility so I can sell calls and pocket the premium.  

Sell Calls Carefully

Careful selling of calls such as making sure the call is far enough out that you will get the dividend provided your shares are not called away is needed.   In addition to picking the right expiration, you need to pick the right strike price.    

Unless you are desperate, you do not need to sell a call with a strike price less than your basis.   I like to shoot for a 10% gain above my basis but for the right premium, I might take less.   I use my covered call calculator to make the decision for me.   If the gain totals 10% including the capital gain if it is called away, plus the call premium which is never less than 1%, and the dividend that would be paid if I hold the stock to expiration, then I go for it.

I like QCOM because it has proven to be a good income investment for me.   You may want to consider adding it to the income producing portion of your portfolio.


Disclosure:  Long QCOM
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Caterpillar adding to Dividend Machine CAT

I last wrote about Caterpillar, symbol CAT, in March of this year.  The subject was covered calls on this marginal Dividend Machine because at that time CAT was not quite a solid Dividend Machine but with covered calls, it is an income machine.

Today, I reiterate a buy on CAT

Here we are three months later and due to an aggressive quarterly dividend increase from $.70 to $.77, CAT now solidly qualifies as a 2015 Dividend Machine.   To remind you the criteria for a stock to be a Dividend Machine in 2015 are:  earnings greater than dividend paid out, a yield of 3.5% or more, average annual dividend growth of at least 4% over the past five years and a D/E ratio of 1 or less or equal to industry standards.

Since I am profiling this stock when the market is closed, I will use Monday's closing price of CAT for CAT's basis.   Theoretically, CAT's price could increase so much on Monday that the yield falls below the required 3.5% but I highly doubt it.

Dividend Machine Fundamentals:

Below is a table that illustrates Caterpillar's Dividend Machine bona fides.  You will see that during the last four quarters CAT earned $6.24; during the same period, CAT paid our $2.80 in dividends.  Their new quarterly dividend of $.77 is a forward annualized yield of 3.547% using the closing price of $86.82 on Friday June, 26 2015.  Dividend appreciation has averaged 15% over the past five years.  In July 2010 CAT paid our $.44 per share and this July, the dividend is $.77 per share.  D/E ratio according to MSN money is 1.58 and the industry standard is 2.02.

Since I wrote about CAT in March, the price has increased from about $81 to about $87.  Not quite a 10% increase.   Yet, this stock is still well below the 52 week high of $111.36. 

CAT is frustrating stock and it has moved into and out of the realm of Dividend Machines.  With the covered call potential, I will be adding CAT and hope that you too will consider CAT for the income producing portion of your portfolio.


Disclosure:  Long CAT with calls
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Friday, June 26, 2015

Apple, AAPL an income stock?

June 26, 2015

How to add 1.7% to a yield of 1.63% and have the potential of a capital gain.   This is what Apple, symbol AAPL can do for you today.


Disclosure:  No positions
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Wednesday, June 24, 2015

China Mobile Income in a down market

I find the market so interesting.  You can rarely predict what is going to benefit you.  Today the market is down over 140 points.  Calls expired last Friday and today I see some good opportunities to make additional income from selling covered calls on those positions where covered calls expired last week.

China Mobile, symbol CHL,  is not a dividend machine but it does pay about 2.6% in dividend yield.  You get paid to wait.  I have owned it quite a while.  If you add today, you will pay about $66.35 and you can sell a September $70 call for about $1.65 and if you own it on 9/2, you are highly likely to receive the next quarterly dividend.

Although CHL is not a dividend machine because the yield is too low and the dividend increases are affected by currency exchange issues, the D/E ratio of only .0058 makes the risk worth it for me.

The table below presents data on the call I sold today.


Disclosure:  Long CHL with calls
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GME an excellent Income Machine

June 23, 2015 

Just returned from a quick trip that left me without access to the internet.  Upon my return I see evidence of my dividend/covered call income strategy.

GameStop, symbol GME. 

Bought GameStop in March for $40.60.  I bought it for the dividend, the recent dividend increases, the balance sheet and the opportunity for covered calls.  I was so confident that GME could be a good income stock with growth potential I wrote about it; see link:  at that time the stock was trading closer to $44.00.    

When I bought GME at $40 ish I sold an April $44 call that expired. 

On April 22 I sold another $44 call that expired on 6/22/2015 with an expected dividend payment on 6/23/2015.   Very nice to see the call expire, the premium from selling the call in the bank and the dividend delivered as expected and the stock trading above the strike price.

Income investors take note.  Two turns at covered calls and two dividends since taking a position in GameStop.  GME, a good income machine.


Disclosure:  Long GME with calls

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