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The Quest For Yield (Part 6): Enhancing The Yield From Your Dividend Stocks
By: Jeffrey A. Miller   Wednesday, March 14, 2012 12:59 AM
Symbols: AAPL, CAT, MSFT

When I am picking stocks I get ideas from many sources.  With ideas in mind, my most important screen is earnings-based, since that will eventually determine price.  I am a big fan of Chuck Carnevale's service, where you can get a long-term earnings history as well as many important metrics for stock valuation.  I do not take any long-term investment position without "talking to Chuck" via his site.  Even if you are not a subscriber (and you should be), Chuck graciously shares many of his best ideas and screens with a complete suite of charts.

So we now have a list of stocks with reasonable, well-supported dividends.

Covered Calls

In my original article on selling options against your stock positions, I did not focus on dividend stocks.  I did a careful description of stocks that fit the profile.  Some stocks that I liked but were not suitable for covered writes (Apple, then trading around 318, was not suitable because we did not want to cap our upside.  Other names were just fine, including my example of Noble Energy (NE) although I said the Microsoft was also a good candidate.

The article goes into some detail about sources and how to find the right call to sell.

Putting the Concepts Together

Last October I wrote about why investors should combine these two concepts to create a true total return, income portfolio.  The basic idea is that you should not fixate on stock price movement.  If you pick good stocks, collect dividends, and collect call premiums, you will achieve your target.  Do not get too frisky on your stock selection!

I had an interesting section in this article, which I called, "Do You Qualify?"

Here is the qualification test -- hardly anyone can pass it!

You cannot look at your brokerage statement, the daily mark-to-market, the monthly mark-to-market, or anything else for ten years.

This is what you would do with a bond portfolio.  You buy expecting to collect the coupon and the principal at maturity.  It is a simple test, yet a difficult one.  The bond investor does not worry about daily marks.

Psychologically, people cannot do this with stocks.

You should simply look at your statement and see if the combined flow from dividends and call sales are meeting the objective.


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