How To Earn A 20% Yield On Dow Dividend Stocks

Includes: INTC, MSFT
by: Double Dividend Stocks

If you're looking for dividend paying stocks that have held up better than the market, the Tech sector offers some of the best stocks around. The Tech sector has held up better than all other sectors except Utilities over the last trading quarter. There are Dow dividend stocks in the Tech sector that have good earnings growth, strong financials, and look to be undervalued, thanks to the recent market correction.

One of these stocks, Intel (NASDAQ:INTC), is listed in our High Dividend Stocks By Sector Tables, due to its dividend yield being much higher than average for the Tech sector:



Even though these dividend yields aren't earth-shattering, you can dramatically increase your yield to over 20% annualized on these stocks by selling options. Here are 2 techniques in which the option yields outstrip the dividend yields by up to over 13 times.

Covered Calls: The INTC call option expires in December, and the calls for MSFT expire in Jan. 2012.

The difference in call option premiums vs. dividends is most dramatic here for MSFT, ($1.78/call premium vs. $.16/dividend).

You can find more details on this and many other covered call trades in our Covered Calls Table.


Cash Secured Puts: If you're looking for a lower break-even entry price, selling cash secured put options just below the current stock price can also offer some high option yields. The difference in option premiums vs. dividends is even higher for puts, thanks to the present market volatility.

Again, MSFT shows the most dramatic advantage for selling options vs. dividends: MSFT pays $2.10 for puts. vs. $.16 for dividends. All of these puts expire in Jan. 2012.

You can find more details on this and many other covered call trades in our Cash Secured Puts Table.

Note: We list the dividends in our puts tables for comparison only - unlike covered call sellers, put sellers don't get paid dividends.


Financials: Both firms have attractive management and margin ratios, in addition to having very low debt loads - INTC is virtually debt-free.


Valuations: Intel's PEG for next year looks very high, but the 3.39% EPS growth figure may be too low, given that analysts typically undervalue Intel's future earnings, as evidenced by INTC's 4 consecutive earnings surprises over the past year. The Price/Book values for INTC and MSFT are below the Tech sector's 3.91 average.


Technical Data:


Disclosure: I am long INTC.

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