Many of the stocks that I own and write Covered Calls upon also pay dividends.  Dividends happen on a regular basis and add significantly to my annual investment income.

Yesterday I received the following dividends in an IRA account for a total of $214.00:

I use my basis per share, excluding dividends, 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.

This dividend is a little unusual in that it was a cash payout and a stock payout.  ACAS solicited desires as to whether stockholders wanted a cash payout or a stock payout.  They then did a proration of cash and stock apparently taking into account the desires of the various stockholders.  My preference was all cash.  What actually happened was that I received the $37.04 as a cash dividend and the $176.96 as a stock dividend.  The stock dividend translates into an additional 54.9586 shares of ACAS.  ACAS is trading at about 3.08 at this writing so the current value of my new shares is about 169.27. 

Today, I sold 2 ACAS Aug09 5 Covered Calls for a net deposit of $10.49 in an IRA account.  My basis for these ACAS shares is now 23.55, excluding dividends received.

ACAS declared a dividend of 1.07 per share, payable on Aug 7.  Apparently the dividend was declared in order for the company to maintain its tax status as a regulated investment company and eliminate its income tax liability.  This is the company’s first dividend since Jan08.

The news is not good for ACAS.  It was removed from the S&P 500 in Feb09 and defaulted on $2.3 billion of unsecured credit arrangements on Mar 31.  Even with all of that, some analysts have raised their opinion on the company.  So, what to do?  I guess I am somewhat of a gambler so I am going to continue to hold onto ACAS for now, collect the dividends as they may appear and sell Covered Calls from time to time to decrease my basis and add to my cash flow.

Yesterday I sold 2 ACAS Jun09 5 Calls for a net deposit of $40.50 in an IRA account.  My basis for these ACAS shares is now 23.20, excluding dividends received.

ACAS has been rising lately which forced me to BTC my May09 2.50 Puts as I wrote about on Monday.  Rolling these Calls out and up cost me 1.59 per share for an increase of 2.50 in the strike price.  A short term cost for a potential longer term  gain.

ACAS was paying a great dividend of more than 1.00 per quarter.  Unfortunately, it last paid that great dividend last October.  They have been having some debt issues.  Most recently (May 6) they defaulted on $2.3 billion of unsecured debt.  They have been has been in talks with lenders since December about restructuring their credit facilities and are looking for buyers for their European portfolio in a deal that could be worth up to $2 billion.

Something must be looking better for ACAS though because on the same day they defaulted on the debt and analyst at KBW raised ACAS to market perform from under perform and raised its target price to $3 from $1.  However, that was not much of a stretch with the stock already above 3.