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 $2,785.01 in dividends in my various accounts for 2012.  My year to date average monthly dividends received is currently $928.34.  The year-to-date dividends currently represent about 30.84% of my average monthly investment cash flow and about 2.49% return on my current basis value.

My YTD dividends are up by $140.42 on a monthly average from last year.  That represents a 17.82% 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 $1,006.79.

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.

The DCIX shares are ones I received as a split off from Diana Shipping (DSX).  I had thought about just selling them but there are so few and the trading cost would chew up so much relative to what I would receive that I decided to keep them, at least for now, and collect the little dividends that they throw off.

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, 2/8/12, I BTC 2 IR Feb12 $37 Covered Calls and STO 2 IR Sep12 $40 Covered Calls for a net deposit of $238.96 in an IRA account.  My basis for these IR shares is now $46.40, excluding dividends received.  In addition to the increase in my strike price by $3 these transactions represent a simple return of about 2.51% and an annualized return of about 4.04% on my prior basis.

I sold the Feb12 $37 call when IR was trading at about $34.50 with the idea that, although it was trending up, it would not reach $37 by February expiration.  The MACD, Williams and Stochastic indicators all suggested that IR was oversold and might pull back a bit or at least plateau below $37.  Of course, I do not claim to have any great expertise as a chartist or an interpreter of the various indicators but I do look at them to try to determine a possible stock direction.   Sometimes I am correct and sometimes I am not.

In any case, I have been watching IR hoping that it would fall below my strike price but it doesn’t appear as if that will be the case.  I decided to go ahead and roll the Calls out now because I could do so at a net credit while increasing the strike price once again.

S&P currently has a 12-month price target of $30 for IR and a Buy rating.  MarketEdge has a price opinion of $30.65 and a Long recommendation.  At this point, they both appear a little behind the curve.  The 18 Yahoo Analysts have a 12-month target of $38.50 and a recommendation of 2.3 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

IR raised its quarterly dividend twice in the past 12 months and now pays .16 per quarter which is about a 1.69% annual yield at it current price of $37.90.  My return will be about 1.38% on my new basis.  That is not stellar.  IR’s dividend was .18 per quarter as recently as May 2009.  Even at .18 IR’s dividend is not great.  Over time, unless called away sooner, my basis will decline as I continue to sell new Covered Calls and the dividend yield on my basis will improve.  The Call option premium will also increase my actual return on my investment in the stock.

Yesterday, 1/23/12, I sold 2 IR Feb12 $37 Covered Calls for a net deposit of $60.48 in an IRA account.  My basis for these IR shares is now 47.59, excluding dividends received.  In addition to the increase in my strike price by $2 over my prior Calls, these transactions represent a simple return of about .63% and an annualized return of about 8.86% on my prior basis.

I have been rolling IR Covered Calls out since February 2009.  It is refreshing to have them actually expire worthless as they did last week.  It is also refreshing to be able to sell the next month strike for a change.  IR is up more than $1 to $35.69 as I write this.  I hope that I don’t need to roll it out again but will certainly do so if it looks like the shares are in jeopardy.

S&P currently has a 12-month price target of $30 for IR and a Buy rating.  MarketEdge has a price opinion of $30.65 and a Long recommendation.  The 18 Yahoo Analysts have a 12-month price target of $37.94 and a recommendation of 2.3 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

IR has increased it dividend for the second time in the past year and now pays a .16 per quarter dividend, which is about a 1.80% annual yield on the current price, and about 1.34% on my current basis.  That is not stellar.  IR’s dividend was .18 per quarter as recently as May 2009.  Even at .18 IR’s dividend is not great.  Over time, unless called away sooner, my basis will decline as I continue to sell new Covered Calls and the dividend yield on my basis will improve.  The Call option premium will also increase my actual return on my investment in the stock