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 $5,860.80 in dividends in my various accounts for 2010.  My year to date average monthly dividends received is currently $586.08.  The year-to-date dividends currently represent about 26.58% of my monthly investment cash flow and 2.00% return on my current basis value.

Despite BP not paying a 3^rd quarter dividend my YTD dividends are now up by $14.07 on a monthly average from last year.  I attribute the increased dividends to a few companies raising their dividends and to my purchasing additional dividend paying stocks.  Normally I would have received an additional $420 in BP dividends in August.  BP will also not pay its regular dividend in November which will be another $420 hit.  On the plus side, BP is starting to talk about paying dividends again in 2011.  During September, I have received notice of the following dividends paid in various accounts for a total of $938.90. 

MFA, ANH, and NLY are mortgage REITs that make their money on interest rate spreads.  Their current high annualized dividend yields on my basis are probably at risk when the Fed begins to raise its discount rates.  As of this writing, my current basis, excluding dividends, for most of these stocks are above their current market price.  I attempt to sell Covered Calls on these stocks to reduce my basis which, to some extent, will help mitigate any future reduction in their dividend payouts.  I find myself just holding some of these stocks sometimes while I wait for their price to rise to a point that I am comfortable selling new Covered Calls.  If I do not sell new Covered Calls I am content to capture the nice dividend for an indefinite period.

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.

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 $3,856.15 in dividends in my various accounts for 2010.  My year to date average monthly dividends received is currently $550.88.  These dividends represent 26.35% of my monthly investment cash flow and 1.80% return on my current basis value.

During July, I received notice of the following dividends paid in various accounts for a total of $321.92:

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, 6/2210, I BTC 6 BVF Jul10 17.50 Covered Calls and STO 6 BVF Jan11 17.50 Covered Calls for a net deposit of $630.81 in two IRA accounts.  That is 4 contracts in one account and 2 contracts in the other account.    My basis for these BVF shares is now 14.06 and 17.38 respectively, excluding dividends received.

Bioval and Valeant (VRX) announced yesterday that they will be merging which has caused BVF shares to soar about $4 in the past two days.  It’s a little curious reading the press releases.  Most seem to say that BVF is acquiring VRX but one says that VRX is acquiring BVF.  The best answer seems to be that they are merging.

In any case, the announcement has caused what I had thought to be a “safe” Covered Call at a 17.50 strike has suddenly become well into the money.  That would have been okay for the 400 shares in one account which I owned at 14.54 but I owned 200 shares in the second account at 18.42.

According to one report, the deal valued BVF at a 15% premium over recent prices.  That should be no more than about a $2.25 premium.  BVF share price has increased about $4 already.  I suspect that the BVF shares will pull back, possibly even below my 17.50 strike price but maybe not before the July expiration.  It has also been my experience that the further in the money an option is the more difficult it becomes to roll out at a net credit.  Since I will be on vacation when options expire I decided to take some action now and roll out the Calls.  The result is that if BVF does get called away I will make a profit on all of my shares.  I will probably attempt to roll out again before Jan11 expiration.

BVF reduced it’s divided to .09 from .38 beginning with the Jul09 payout.  Even so, I have received $666 in dividends since 2009 when my records first began to track them.  I would probably want to continue to own BVF to collect the dividends and option premiums.  If corporate savings can actually be realized from the merger as the companies suggest I would expect the dividend to increase sometime in the future.