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 $1,096.51 in dividends in my various accounts for 2012.  My year to date average monthly dividends received is currently $1,096.51.  The year-to-date dividends currently represent about 27.41% of my average monthly investment cash flow and about 2.98% return on my current basis value.

My YTD dividends are up by $308.60 on a monthly average from last year.  That represents a 39.17% 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 January, I received notice of the following dividends paid in various accounts for a total of $1.096.51.

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.

ANH, MFA 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 some of these stocks is now below their current market price, which increases my yield on those stocks.  From time to time, I attempt to sell Covered Calls on these stocks to reduce my basis, which, to some extent, will help mitigate any possible future reduction in their dividend payouts.  I find myself just holding some of these stocks 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.  Notably, PGF, NLY, ANH and MFA fall into this category.

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, 1/6/12, I BTC 2 KFT Jan13 $30 Covered Calls and STO 2 KFT Jan14 $30 Covered Calls for a net deposit of $48.94 in an IRA account.  My basis for these KFT shares is now $25.03, excluding dividends received.  These transactions represent a simple return of about .97% and an annualized return of about .48% on my prior basis. 

KFT goes ex-dividend next week on January 13 and I wanted to help ensure that I would not be called away at this time for the dividends…for the simple reason that I want the dividends.  KFT is trading more than seven dollars above my strike price but it has been my experience that the further out the option expiration date is the less likely that the option will be exercised.  I really wanted to roll the strike price up but could not do so for a net deposit in the transaction.  I am still a winner if KFT is called away though and will just find another place for the money if it is called.

S&P has raised its 12-month target to $38 from $36 for KFT and continues its Hold rating.  MarketEdge has increased its price opinion to 34.87 from 34.87 for KFT and now has a Long rating on it.  The 17 Yahoo analysts have an average 12-month price target of $39.59 and a recommendation of 1.8 where 5.0 is a Strong Buy and 1.0 is a Strong Sell.

It helps that I am in the money on KFT and am okay if it is called away at this strike.  However, as I suggested above, I will probably try to continue to roll the stock out to maintain ownership and continue collecting the dividends and option premiums.  The dividend yield on my basis will be about 4.63%, if I am not called away that is.

I originally acquired KFT as a spin off from MO back in 2007.  Since 2009, I have received $696 in total dividends or $3.48 per share in total.  My records do not currently reflect any dividends I may have received prior to 2009.  The dividends are about 4.63% annualized yield on my option-reduced basis.  Couple the dividends with the option premiums I collect and I am happy to continue owning KFT.

One of the reasons that KFT may be going up is the expectation that it will split into two companies, perhaps as soon as late this year.  I would like to be still holding KFT when that split occurs.

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 $8,154.06 in dividends in my various accounts for 2011.  My year to date average monthly dividends received is currently $741.28.  The year-to-date dividends currently represent about 31.00% of my average monthly investment cash flow and about 2.24% return on my current basis value.

My YTD dividends are up by $137.00 on a monthly average from last year.  That represents a 22.67% 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 October, I received notice of the following dividends paid in various accounts for a total of $1,305.59.

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.

ANH, MFA 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 some of these stocks is now below their current market price, which increases my yield on those stocks.  I attempt to sell Covered Calls on these stocks to reduce my basis which, to some extent, will help mitigate any possible 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.  Notably, PGF, NLY, ANH and MFA fall into this category.

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.