Today, 6/8/11, I BTC 2 MO Jun11 26 Covered Calls and STO 2 Jan12 26 Covered Calls.  I also BTC 1 MO Sep11 26 Covered Call and STO 1 Jan12 26 Covered Call.  Both sets of transactions were in IRA accounts and created a total net deposit of $103.46.  My basis for these MO shares is now 22.83 and 24.05 respectively.  These transactions yield simple returns on my basis of about 1.78% and .84% and annualized returns of about 2.86% and 1.35%. 

I would have liked to roll these strikes up to the next level but could not do so with a net deposit to my accounts.  When the Jan14 Leaps become available I will see if I can roll out and up to the $30 strike price.  There will be more time premium in the Jan14 strikes which just might make that trade possible.

MO goes ex-dividend next week on 6/13/11.  I rolled out these Covered Calls to mitigate the chance that I would be called away just for the dividends.  It could still happen though because my strike price is under water but it has been my experience that those options that are farther out seem to be assigned less often.  I still make money on the shares if I do get called so I would not get hurt either way.

Speaking of dividends, MO pays a pretty good dividend at 38 cents per quarter for an annualized return of about 5.57% at the current market price and about 6.66% and 6.32% respectively on my current basis.

I consider MO a part of my long term core holdings and will continue to accumulate it or sell Puts on it when I can do so below my average 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 $3,123.51 in dividends in my various accounts for 2011.  My year to date average monthly dividends received is currently $780.88.  The year-to-date dividends currently represent about 30.15% of my average monthly investment cash flow and about 2.44% return on my current basis value.

My YTD dividends are up by $176.60 on a monthly average from last year.  That represents a 29.23% 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 April, I received notice of the following dividends paid in various accounts for a total of $1,178.35. 

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 many 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.

Today, 4/19/11, I Sold 1 MO Jun11 25 Put for a net deposit of $33.24 in an IRA account.  My basis for these MO shares would be 24.67 plus transaction costs if Put to me.  These transactions yield a simple return on my potential assigned price of about 1.32% and an annualized return of about 8.04%.

This is my first transaction for MO in this IRA account.  As I have noted in earlier posts I want to own more MO and decided to sell this Put with the thought that I will either own more or, if not, I will have captured a decent premium.  I sold the June Put because the May 25 Put just did not have enough option premium.

MarketEdge currently has a price opinion of $25.05 and currently has a Long recommendation with a fair (37% accuracy) rating predicting the price direction of MO.  S&P has a 12 month price target of $29.00 and a Strong Buy recommendation with an excellent (100% accuracy) rating predicting the price direction of MO.  The Yahoo! Analysts have a 1 year price target of $26.17 and an average recommendation of 2.5 on the scale where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

MO pays a good dividend having raised it for the 3rd quarter of 2010 to 38 cents from the prior 35 cents per quarter for an annualized return of about 5.82% at the current market price.  Even better may be that MO is a serial dividend raiser having increased its dividend each year for 42 years.  That bodes well for the stock price and for increasing my yield on the shares that I own.

I consider MO a part of my long term core holdings and will continue to accumulate it or sell Puts on it when I can do so near or below my average basis.