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, 1/10/12, I BTC 1 FCX Jan13 $40 Covered Call and STO 1 FCX Jan14 $42 Covered Call for a net deposit of $115.48 in an IRA account.  My basis for these FCX shares is now $47.12, less dividends received.  This transaction represents a simple return of about 2.39% and about 1.18% annualized on my prior basis.

This is one of those stocks that I am trading in this account to attempt to gather cash faster than my normal methods.  In this case, I had hoped to gather option premiums while selling Covered Calls slightly out of the money with the goal of the stock being called away above my basis allowing me to repeat the cycle with the same or another stock.  Except…in this case FCX did not cooperate and fell a little farther than I wanted…and now is recovering faster than I want.    So I have had to roll the Call out and up again, although still at a strike price below my basis.  I would normally have not been concerned with the stock price above my strike price except that tomorrow is the ex-dividend date for FCX and I did not want this one called away below my basis.  If FCX behaves as in the past I might be able to roll these Calls in and down sometime before Jan14.

S&P continues a 12-month price target of $48 and a Buy rating on FCX.  MarketEdge has a price opinion of $38.87 and now has a Neutral rating, up from an earlier Long.  The 18 Yahoo Analysts have a 12-month price target of $53.17 with a recommendation to 1.8; on a scale where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

Today, 1/6/12, I BTC 3 FCX January 6, 2012 weekly $39 Covered Calls and STO 3 Jan12 monthly $39.50 Covered Calls for a net deposit of $245.47 in an IRA account.  My basis for these FCX shares is now $36.34, excluding dividends received.  These option transactions represent a simple return of about 2.20% and an annualized return of about 53.56% on my basis, if held maturity.  In addition, I have increased my potential return by $150 if the stock should be called away from me.

FCX goes ex-dividend next week on January 11 and I would like to collect the dividends, even though I originally purchased these shares for the purpose of selling close to the money weekly Calls so they could be called away for a slight profit.  FCX has been flirting around my prior $39 strike price so I decided to go ahead and roll out and up rather than take the chance that I might be called away.

S&P has a 12-month price target of $48 and continues its Buy recommendation.  MarketEdge has a lower price opinion of $39.73 and has a Long opinion on FCX.  The 18 Yahoo Analysts currently have a 12-month price target of $52.94 a recommendation of 1.8, down from a previous 2.1; on a scale where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

As long as FCX continues to trade around $40, I believe I will continue to buy it, sell near the money Covered Calls and try to capture a dividend now and then.  I seem to be creating better cash flow at this time with this method.