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 $4.287.16 in dividends in my various accounts for 2010.  My year to date average monthly dividends received is currently $612.45.  These dividends currently represent 28.25% of my monthly investment cash flow and 2.00% return on my current basis value.

During July, I received notice of the following dividends paid in various accounts for a total of $431.01:

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.

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.

Yesterday 7/27/10, I sold 4 NLY Jan11 19 Calls for a net deposit of $122.96 in an IRA account.  My basis for these NLY shares is now 17.11, excluding dividends received.

I would prefer to have sold Calls with an earlier expiration date but I needed to go further out in order to get a reasonable premium for the $19 strike price which I think will allow these Calls to expire worthless in January.  As you can surmise, I would prefer for NLY to not be called away.  I sort of think of NLY as part of my core holding because of its good return (14.93% on my basis when last received on 4/28/10) and for the extra income I can receive from selling Covered Calls.

This option transaction provides me a simple return of about 1.76% which translates to an annualize return of about 3.62%.  I sort of think of NLY as part of my core holding because of its good return (14.93% on my basis when last received on 4/28/10) and for the extra income I can receive from selling Covered Calls.  The combination provides me with a pretty good return on my basis.

Many of the stocks that I own and write Covered Calls upon also pay dividends.  Dividends happen on a regular basis and add significantly to my annual investment income.  Year to date I have received a total of $2,781.34 in dividends in my various accounts for 2010.  My year to date average monthly dividends received is currently $556.27.

I received notice of the following dividends paid in various IRA accounts for a total of $379.71:

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.

NLY is a mortgage REIT that makes its money on interest rate spreads.  Its current annualized dividend at 14.93% on my basis is probably at risk when the Fed begins to raise its discount rates.  As of this writing, my current basis, excluding dividends, for NLY is above its market price of $16.25.  I sell Covered Calls on NLY to reduce my basis which, to some extent, will help mitigate any future reduction in NLY’s dividend payout.

I use my basis per share, excluding dividends, 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.