Many of the stocks that I own and write Covered Calls upon also pay dividends.  Dividends occur on a regular basis and add significantly to my annual investment income.  Year to date I have received a total of $1,778.22 in dividends in my various accounts for 2012.  My year to date average monthly dividends received is currently $889.11.  The year-to-date dividends currently represent about 25.51% of my average monthly investment cash flow and about 2.38% return on my current basis value.

My YTD dividends are up by $101.20 on a monthly average from last year.  That represents a 12.84% increase to date year over year.  I attribute the increased dividends to a few companies raising their dividends and to my purchasing additional dividend paying stocks.  During February, I received notice of the following dividends paid in various accounts for a total of $687.71.

Div-3-1-12

Please notice that PGF is an ETF and pays dividends monthly.  The annualized dividend yield for PGF is based upon the simple and false assumption that it will pay the same dividend each month for the next 12 months.  The actual annualized dividend yield may be more or less than illustrated here.

I use my basis per share to determine the simple and annualized percentage return because I feel that it gives me a better representation of the value of the dividends as they relate to my portfolio.  My basis may be above or below the market price which causes my return to be lower or higher than published yields for a stock.  I calculate my basis per share as my acquisition price less any option premiums received on those shares.  I do not use dividends to reduce my basis.

Today, 1/31/12, I BTC 8 AA Apr12 10 Covered Calls and STO 8 AA Jan14 12.00 Covered Calls for a net option premium deposit of $475.87 in an IRA account.  My average basis for these AA shares is now 20.44, excluding dividends received.  These transactions represent a simple yield of about 2.83% and an annualized yield of about 1.44% with 718 days to expiration.

I find this trade a little humorous because I did almost exactly the same thing one year ago.  The only real difference was that I then was rolling up from an Apr11 $16 strike to a Jan12 $17.50.  Of course, I rolled out an extra year this time.  Then, in Aug11, I actually rolled in and down to the Aug11, $13 strike and was able to sell monthly options through Dec11.  Maybe I will be able to do something similar again with these shares.

I made this trade today because AA is ex-dividend tomorrow and I was a little in the money on my prior Covered Calls.  I did not to take the chance that somebody would call my shares away because of the recent run up and to capture the dividend, regardless that it is only 3 cents per share.  I would probably have been okay but decided to go ahead and get the additional cash deposited today and increase my potential called deposit by an additional $1600.

AA has been moving up of late.  The 16 Yahoo Analysts have a mean 12-month price target of $11.40 with a mean recommendation this week (and last week) of 2.5 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.  S&P has a12-month price target of $13.00 with a Buy recommendation.  MarketEdge has a price opinion of $10.43 with a Long recommendation.

AA is one of those companies that reduced it dividend.  Back in February 2009 it paid 17 cents per share and has since reduced that dividend to 3 cents per share, including for the current quarter.  I look forward to the day when the dividend begins to recover.  In the meantime, I expect that I will continue to hold AA and collect the dividends such as they are and collect option premiums.

Today, 12/19/11, I sold 8 AA Apr12 $10.00 Covered Calls for a net option premium deposit of $361.94 in an IRA account.  My average basis for these AA shares is now $21.04, excluding dividends received.  This transaction represents a simple return of about 2.11% and an annualized return of about 6.25% on my prior basis, if held to maturity.

Unlike last month, I was unable to sell the near month Calls at this strike price to get a reasonable return.  I don’t that AA will get to $10 in April but if it does, I should have room to roll these options out and possibly up for another net credit to my account.  Choosing the $10 strike so far out is a bit of a gamble but I deemed it necessary this time.

The 16 Yahoo! Analysts have a mean 12-month price target of $12.73, down from $13.27 last month, with a mean recommendation this week of 2.5, down from 2.4 last month, where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

AA is another of those companies that reduced it dividend.  Back in February 2009 it paid 17 cents per share and has since reduced that dividend to 3 cents per share, including for the current quarter.  I look forward to the day when the dividend begins to recover.  In the meantime, I expect that I will continue to hold AA and collect the dividends such as they are and collect option premiums.  I am tempted to buy some additional AA shares at this price but have decided to delay once again until at least next month.