Think of your stock portfolio as an Apartment Building that you own free and clear.
The building has 10 Apartments that are rented to:
Apple (NASDAQ:AAPL), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), McDonald's (NYSE:MCD), AT&T (NYSE:T), UnitedHealthcare (NYSE:UNH), Procter & Gamble (NYSE:PG), Exxon Mobil (NYSE:XOM), Amazon.com (NASDAQ:AMZN) and United Parcel Service (NYSE:UPS)
If you own the apartment building for the rent it generates and not to sell it, then the dividends and covered calls from your stock portfolio is the same as the rent from an apartment building.
The value of the apartment building isn't important if you have no plans to sell it and your goal is current income.
All the renters except for AMZN and AAPL have an excellent record of paying their dividends on time for decades regardless of their combined market value.
The Table illustrates what the dividends and January covered calls would generate in 9 months from the apartment portfolio if the executions took place April 19, 2013.
Note that the calls have added $27,930 to the rent.
The dividends from the renters should continue after January regardless of the total value of the apartment building, however, the Call premiums may differ for the following year and new renters might have to found to replace those who were exercised out.
This is a strategy for a retired income oriented investor who is willing to sell his upside potential for current income.
The purpose of the article is not to discuss the various rental programs that could be put in place for The Apartment Building with Covered Calls but rather to have you consider that your portfolio can be managed like one if your own it free and clear, have no interest in selling it and want current income from the rent.
Table: Rent from Dividends and Calls
*STRIKE PRICE OF CALLS
RENT DIVS & CALLS
**Dividends Adjusted for 9 Months
The yield is 7% from the dividends and call premiums if the shares are not exercised.
If the entire portfolio was exercised in January 2014 the yield would be 15.7%
The cost of the apartment building in the Table is $837,000; however, the annual percentage yields would be the same for buildings of half or double the cost.
Disclosure: I am long AAPL, JNJ, KO, MCD, T, UNH, PG, XOM, AMZN, UPS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.