These Covered Calls Offer Double Digit Yields

by Robert Hauver

There are 2 dividend stocks in our Covered Calls Table which are currently offering high options yields: MDC Holdings, (MDC), and Hooker Furniture, (HOFT). We previously wrote about MDC, and its call options continue to offer good yields. Both of these companies have gotten an earnings boost from the US Housing Recovery, and look to be on track for continued earnings growth over this year and next year:

MDC-HOFT-QTRLY

40 year old MDC is a homebuilder, based in Denver, Co which sells its new homes throughout the US, under the name “Richmond American Homes”.

Virginia-based HOFT is a a home furnishings marketing and logistics company, Which, together with its subsidiaries, designs, imports, manufactures, and markets residential furniture products in the US.

Dividends: MDC pre-paid 3 of its 2013 quarterly dividends in December 2012, to avoid a higher dividend tax rate for its shareholders. It should pay its next $.25 dividend in November 2013:

MDC-HOFT-DIV

Options: Neither of these companies are high dividend stocks, but they do offer high options yields, via their November covered call options, which are far enough out of the money, that you can also potentially participate in some price gains. There’s also an attractive put selling trade for MDC, which is listed in our Cash Secured Puts Table.

There are 3 basic scenarios for these covered call trades:

(A) Static – The stock doesn’t rise to or above the option strike price before or near the ex-dividend date, in which case you keep the shares, and you collect the dividend and option $.

(B) Assigned – The stock does rise to or above the option strike price before or near the ex-dividend date, in which case you must sell the shares, and you collect the price gain $ and option $, but no dividend.

(C) Assigned after ex-dividend date – The stock does rise to or above the option strike price AFTER the ex-dividend date, in which case you must sell the shares, and you collect the price gain $, option $, and the dividend $.

MDC-CALL

MDC-CALLINC

HOFT-CALL

HOFT-CALLINC

Performance: Like other homebuiders, MDC has pulled back in price over the past few weeks, due to concerns that Fed tapering will continue escalate rates and slow down housing demand. HOFT is under 4% below its 52-week high:

MDC-HOFT-PERF

Financials: Both firms work on low Operating Margins, and HOFT has a cleaner balance sheet, being debt-free:

MDC-HOFT-ROE

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short MDC put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.