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Long/short equity, contrarian, short-term horizon, dividend investing
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There are several dividend harvesting approaches. Some are better than others. The trick is to minimize the amount of risk and still have an edge. This is one of my favorite and easy to understand methods of making gains with options and dividends. I get asked often how long I normally hold the position before closing out. On average I enter into a position with the idea I may hold it for a month with the current numbers here.

In this article we will go over a few stocks that have upcoming dividends I may capture with a minimum amount of risk. The criteria that I use is that I must be able to sell a call option in either the front or first back month that is in the money and with enough premium that I will not mind getting exercised early (which happens often and can be a good thing if the trades are executed correctly).

Enterprise Products Partners L.P (NYSE:EPD)

  • Yield: 5.63%
  • Dividend Amount: $0.61
  • Ex-Dividend Date: October 27, 2011
  • Beta: 0.57

Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals in North America. The company was founded in 1968 and is based in Houston, Texas.

Strategy

In combination with my buying the stock and after checking company updates, offer to sell the November $41.00 strike call for $0.43 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about $0.23.

The P/E ratio has dropped, as the current trailing twelve months (ttm) P/E ratio is 27.9, while the forward P/E ratio is now 21.8. It will be interesting to see if pricing is currently at a discount, or if the market has been correct to price in lower growth expectations. The current book value per share is 13.17.

Revenue year-over-year has increased to $33.74 billion for 2010 vs. $25.51 billion for 2009. The bottom line has rising earnings year-over-year of $320.80 million for 2010 vs. $204.10 million for 2009. The company's earnings before income and taxes are rising with an EBIT year-over-year of $2.15 billion for 2010 vs. $1.85 billion for 2009.

At $43.53, the price is currently above the 200 day moving average of 42.07, and above the 60 day moving average of 41.30.

The stock has moved higher in price 1.37% in the last month, and changing from last year at this time 3.94%.

With a gain compared to stocks in general, the stock is better than the overall stock market. When comparing to the S&P 500, the year up to date change is 7.30%.

The dividend payout rate percentage is anything but stable, but the over all metrics are much better. With such a high Beta, this is a perfect stock to use options with in you are going to own or short it anyway.

paid2trade.com revenue gross bar chart for EPD

NiSource Inc. (NYSE:NI)

  • Yield: 4.09%
  • Dividend Amount: $0.23
  • Ex-Dividend Date: October 27, 2011
  • Beta: 0.80

NiSource Inc., an energy holding company, through its subsidiaries, provides natural gas, electricity and other products and services. The company was founded in 1912 and is headquartered in Merrillville, Indiana.

The stock is performing great. All moving averages are headed in the right direction. This may be a good one to further look into selling a further out call and try to get at least two dividends before letting go.

Strategy

In combination with my buying the stock and after checking company updates, offer to sell the November $20.00 strike call for $0.57 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about $0.14.

The P/E ratio has been recently discounted, as the current trailing twelve months (ttm) P/E ratio is 20.8, while the forward P/E ratio is now 16.9. The current book value per share is 17.84.

The company has falling revenue year-over-year of $6.42 billion for 2010 vs. $6.65 billion for 2009. The bottom line has rising earnings year-over-year of $292.00 million for 2010 vs. $217.70 million for 2009. The company's earnings before income and taxes are rising with an EBIT year-over-year of $921.30 million for 2010 vs. $801.00 million for 2009.

At $22.47, the price is currently above the 200 day moving average of 19.82, and above the 60 day moving average of 20.95.

The stock has fallen in price -0.18% in the last month, with a change from a year ago of 25.53%.

The stock is performing extremely well when compared to the general stock market up to this point. When comparing to the S&P 500, the year up to date positive change is 30.89%.

paid2trade.com revenue gross bar chart for NI

PNM Resources, Inc. (NYSE:PNM)

  • Yield: 2.85%
  • Dividend Amount: $0.13
  • Ex-Dividend Date: October 28, 2011
  • Beta: 0.90

PNM Resources, Inc., together with its subsidiaries, operates in energy and energy-related businesses in the United States. It primarily engages in the generation, transmission and distribution of electricity. The company was founded in 1917 and is based in Albuquerque, New Mexico.

Strategy

In combination with my buying the stock and after checking company updates, offer to sell the November $15.00 strike call for $0.31 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near $0.09.

The current book value per share is 19.11.

For the same fiscal period year-over-year, revenue has improved to $374.36 million for 2010 vs. $319.51 million for 2009. The bottom line has rising earnings year-over-year of $-25.09 million for 2010 vs. $-56.83 million for 2009. The company's earnings before income and taxes are rising with an EBIT year-over-year of $-6.42 million for 2010 vs. $-42.91 million for 2009.

At $17.56, the price is currently above the 200 day moving average of 15.06, and above the 60 day moving average of 15.27.

The stock has moved higher in price 18.01% in the last month, with a one year change of 46.58%.

The stock is performing extremely well when compared to the general stock market up to this point. When comparing to the S&P 500, the year up to date positive change is 38.43%.

paid2trade.com revenue gross bar chart for PNM

If you would like to read more of my dividend capturing ideas, you may read all of them on my blog. I have an entire category dedicated to dividend capturing.

Remember, you must buy a stock at least three business days before the record date (at least one business day before the ex-dividend date) to qualify for a dividend.

My last step (completed before making a trade on the same day) is to check company announcements and news sources for possible events that may cause the stock price to move. This is especially important during earnings season.

I research the different call options and calculate the expected probabilities based on Beta, Bid, Offer, Volume traded the current day, open interest, and time value/implied volatility. The options offer some level of protection from down moves in the stock, and provide revenue to cover the times that the options do not fully cover down moves in the stock. Income is not needed from the option premiums, so a break even from premiums received/stock losses ratio is a win.

I use a proprietary blend of technical analysis, financial crowd behavior and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. Nothing in the article should be considered investment advice, but you may want to use this article as a starting point of your own research with your financial planner. I use Seeking Alpha, Edgar Online and Yahoo Finance for most of my data.

Source: Profit From Energy Companies With Options And Dividend Capture