2 Dividend Stocks With High Yielding Covered Calls

by Robert Hauver

There are 2 dividend stocks in our Covered Calls Table, that currently have interesting high options yields on out of the money strike prices:

Calumet Specialty Products Partners LP, (CLMT), and Cummins, (CMI).

Dividends: Both of these stocks have ex-dividend dates in May, prior to their May options expiration date of May 17, 2013 market close. CLMT, with its nearly 7% dividend yield, is listed in the Energy section of our High Dividend Stocks By Sector Tables.

CLMT-DIV

Both stocks have covered call trades which expire on the May 17, 2013 market close, after their May ex-dividend dates. CMI’s May $120.00 call option outpays its May dividend by over 11 times:

CLMT-CMI-CALLS

Covered Call Profitability/Income Scenarios: Both stocks have covered call trades with strike prices far enough above their share prices, that you can still earn good income, even if the shares get assigned/sold away prior to the option expiration date. For example, the Potential Assigned Price Gain for CLMT is $1.37, ($40.00 strike price minus $38.63 share cost), vs. its $.65 May dividend:
CLMT-CMI-CALLPROFIT
Share Performance: Both stocks have had big price gains over the past year, and have institutional support. CLMT has outperformed the market substantially so far in 2013:
CLMT-CMI-BETA
Financials: Both stocks have financial ratios above their industry averages, excepting CLMT’s debt load, which is higher than the .13 industry average. CLMT has an Interest Coverage ratio of 1.64.
CLMT-ROE
Disclaimer: This article was written for informational purposes only and is not intended as investment advice.
Disclosure: The author was short CMI puts at the time of this writing.