2 Easy Ways To Triple Your Yields On Dow Dividend Stocks

By Robert Hauver

Do you think that Dow dividend stocks are the best stocks to buy now for dividends and safety? You’re not alone – the Dow has beaten these other major indexes year to date, and also in November, as of 11/10/11:

11

Although it trails the NASDAQ and the RUSSELL 2000 small caps, the Dow is also nearly even with the S&P 500 since the start of the March 2009 rally.

We found 2 Dow dividend stocks with good metrics and low beta’s, which are therefore less volatile than the market, but which also offer attractive dividends. Coca Cola Co. is also one of the Dividend Aristocrats, a group of dependable dividend paying stocks that have increased their dividends every year for the past 25 years:

CVX-KO-DIVS

You could also more than double your dividends on these stocks, via selling Covered Calls and Cash Secured Puts. (The call and put option trades listed below for CVX expire in June, and those for KO expire in May.)

Covered Calls: One of the big pluses of selling covered call options is that the call option premiums you sell are often more than 2 to 3 times the amount of the dividends during the term of the trade. (See the highlighted areas in the tables below.)

Two other bonuses: You’ll get paid your option premiums within 3 days of the trade, if not the same day, and, you’ll lower your risk by virtue of having a lower break-even price.

(You’ll find more details on this and over 30 other high yield covered call trades in our Covered Calls Table.)

cvx-ko-calls

Cash Secured Puts: If you want to be even more conservative, and achieve an even lower break-even price, selling cash secured put options below the stock’s current price is an options strategy via which you get “paid now to wait”. Unlike covered call sellers however, put sellers don’t collect dividends.

The put options below pay approx. 4 to 4.5 times more than the dividends during this 6-7 month period.

(There are more details on this and over 30 other high yield options trades in our Cash Secured Puts Table.)

CVX-KO-PUTS

Financials: For the most part, CVX and KO have better metrics than the DOW 30 averages, and both firms also have better metrics than their industry peers.:

CVX-KO-ROE

Valuations/Earnings: Although these monolithic firms certainly wouldn’t be considered growth stocks, they both had strong growth in their most recent fiscal years, and quarter over quarter. Analysts are currently predicting that CVX won’t be able to increase their earnings in their next fiscal year, but they may be wrong, given the volatility of oil prices that have arisen from the socio-political dramas of the Arab Spring, and many other oil-producing parts of the world. Coke has also managed to grow its earnings better than its beverage industry peers.

CVX-KO-PEG

Disclosure: Author is long shares of CVX.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.

Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved

4 Dividend Aristocrats That Beat The Market Correction

By Robert Hauver

The S&P sank -17.27% from July 7th to its August 8th, causing many portfolio losses. Where can you find some solid dividend stocks to help you through the next market pullback? Try the Dividend Aristocrats – an elite group of dividend stocks that have raised their dividends for at least 25 consecutive years. Four members of the Dividend Aristocrats actually declined less than the S&P, rebounded more, AND are higher than their July 7th marks. Here’s how these four dividend paying stocks performed during and after the market correction:
ED-KO-MCD-HI-LOW
Three of these iconic firms offer basic items: famous brand versions of junk food, soda pop/bottled water, and apparel. Con Ed is the major diversified utility in the metro NY area.

Dividends:
Con Ed is listed in the Utilities section of our High Dividend Stocks By Sector Tables.
ED-KO-MCD-DIVS

Financials:
Although McDonalds and Coca-Cola have very strong mgt. metrics and good margins, further research will show that all 4 firms have lower ROE’s and higher ROI’s than their respective industry avgs. Relatively speaking, however, their reps as safe haven stocks renders them more attractive than their peers during a downturn.

ED-KO-MCD-ROE

Valuations: KO has superior EPS growth stats in the table below, and is the most undervalued on a PEG basis. Of course, utility stocks, such as Con Ed, aren’t known for having great growth figures, due to the heavily regulated environment in which they operate.
ED-KO-MCD-PEG

Two strategies that will bolster the defensive strength of these stocks are selling covered calls and cash secured puts.

VFC has the highest options yields of these 4 stocks, and we’ve listed it in our Covered Calls and Cash Secured Puts Tables, along with many other option selling trades.
The call and put premiums for VFC’s Feb. 2012 options are over 8 times the dividend amount during this 6-month term.

Covered Calls:

ED-VFC-CALLS

Cash Secured Puts:
ED-VFC-puts

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only, and isn’t intended as individual investment advice.

© 2011 DeMar Marketing. All Rights Reserved.

Dow Dividends vs. Selling Long-Term Puts

By Robert Hauver

Consumer Goods Dow 30 component Procter & Gamble, (PG), languishes at the bottom of our High Dividend Stocks by Sector consumer goods table, with a lower dividend yield, (2.82%), than the other dividend paying stocks in this sector table.

Looking at other solid Dow 30 giants, their dividend yields were equally unimpressive.  For example, Coke, (KO), has a 2.87% dividend yield, and Exxon only pays 2.24%.  Is there a way to invest in these great companies, but get paid a higher yield?  Absolutely.  By selling long-term puts, with a January 2011 expiration, you can earn nearly 3 times the current dividend yields on these stocks.  In addition, you’ll get paid this money now, and not have to wait to collect it over the next year. (Brokers have to deposit the option premium money in your account by 3 days after the trade).

Here’s a table illustrating this strategy for these 3 stocks:

STOCK SYMBOL PRICE ANNUAL YIELD JAN 2001 PUT STRIKE PRICE JAN. 2011 PUT YIELD ANNUALIZED
Coke KO $57.18 2.87% $55.00 7.74%
Procter & Gamble PG $62.48 2.82% $60.00 8.40%
EXXON XOM $74.87 2.24% $70.00 7.76%

Here are some other considerations about selling puts vs. just buying stocks and collecting dividends:

1. Taxes: Your put gains will be taxed at your personal tax rate, not the 15% qualified dividend tax rate. Compare your personal rate to see if it’s worth it to you. For example, if you had a Federal tax rate of 35% and a State tax rate of 10%, you’d net 3.48% for the Coke put, vs. 2.44% for the Coke dividend, after taxes. The lower your personal tax rates are, the more advantageous the put selling strategy is, in terms of yield.

2. Capital Gain Timing: Your put gains are taxable when the put expires, is assigned, or you close out your postion.  So, in the above examples, if you simply let the puts expire in 2011, you’d be liable for taxes on these gains on your 2011 taxes.

3. Price Appreciation: The put premium you receive now is the only income and gain you’ll earn on this trade, vs. possible future price appreciation in the stock.

4. Long-term exposure: Although your break-even will be lower on the stock after you’ve sold puts, you’re still obligated to buy the stock, if it gets assigned to you at any time before expiration. So, if you’re wary of another market meltdown , you may not want to sell puts this far out in time.  There are other premiums available, with 2010 expiration dates that would accomplish this.  Just keep in mind that your capital gain would then be in 2010, not 2011.

Disclosure: Author long XOM, PG

Disclaimer: This article is for informational purposes only.